Understanding Insurance

Your guide to GAP insurance

What is GAP insurance?

If your car is written-off or stolen and you make an insurance claim it’s likely your vehicle has depreciated since the time you purchased it and insurers will only pay-out based on their estimate of the car’s current price. This gap between how much you paid and what you’ll receive from the insurer, is what the appropriately abbreviated GAP insurance covers. GAP stands for Guaranteed Asset Protection and is typically an optional add-on with main car insurance policies.

It’s an unfortunate reality that cars depreciate as soon as you drive them out of the forecourt and continue to fall in value significantly throughout their lifetime. GAP insurance essentially protects you from this drop-in value.

You can buy GAP insurance with both new and second-hand cars, but it’s generally more useful for newer cars since they depreciate more quickly. With GAP insurance for a used car you won’t be protecting yourself from as much value-loss so it’s important to consider whether it’s worth it.

Why might GAP insurance be useful?

While GAP insurance is not required and may not be suitable in all circumstances, there are some instances where you may find the additional safety net is worth it.

  • You are repaying your car via finance – GAP insurance would help you pay off the remainder of your loan in the event your vehicle is stolen or written off.
  • You would like a brand-new replacement car if yours is written off or stolen – while your standard car insurance policy is usually enough for a replacement car it may be second-hand despite being an equivalent model.

What types of GAP insurance are there?

While the sole job of GAP insurance is to reduce the gap between your insurer’s pay-out and what you paid for the car there are three types to consider. The ones available to you depend on how old the vehicle is, when it was purchased and where you purchased it from.

  • Vehicle replacement insurance (VRI) – covers the difference between the insurance pay-out and the cost of a similar new car.
  • Return to invoice (RTI) – covers the difference between your insurer’s maximum total loss payment and the exact price you paid for the car.
  • Return to value (RTV) – covers the difference between your insurer’s maximum payment and the value of the car when it was new.

Always ensure you shop around for GAP insurance to find the best deal, prices can vary a large amount for essentially the same product. GAP insurance is commonly offered at car dealerships but this isn’t the only option available, many insurance providers and specialists offer the product.

This is something encouraged by the FCA who were concerned dealerships were selling overpriced insurance products to customers. In 2015 the authority set a rule that you cannot purchase GAP insurance on the same day you buy a car from the dealership. Make sure you are making an informed decision about the product and weigh up your options before making a purchase.

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