Whenever you buy a car, the moment comes when the salesman tries to add GAP insurance into the deal – but what is GAP insurance and do car owners need the cover?
GAP stands for guaranteed asset protection and aims to cover the, well, the gap between the like-for-like cost of replacing a car and the amount the insurance company is likely to pay.
The values differ because every car loses value when the owner signs the sale contract. Some lose value faster than others, but no matter the age of the vehicle, depreciation knocks a proportion from the purchase price each year.
If a car is a write-off because of an accident or stolen, the insurer will pay the market value at that time. That figure is likely to be lower than the purchase price, leaving a finance gap for the owner to fill.
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GAP insurance is designed to bridge that gap by paying the difference plus any outstanding finance.
The GAP market is huge, with dozens of providers offering policies, including dealers, insurance companies and finance companies all looking for a slice of the pie.
It’s a good idea to shop around for the right GAP policy priced competitively to suit your circumstances
Choosing The Right GAP Policy
GAP insurance is available for new, used and leased vehicles, whether owned privately or by a business.
The main policies are:
RTI combined GAP insurance,
Also known in the motor industry as a return-to-invoice/financial shortfall combined product.
RTI Combined pays the difference between the price initially paid for the vehicle (the invoice amount) and the value of the vehicle at the time of loss.
Here’s an example for RTI combined GAP cover:
| Written off after 6 months | Written off after 30 months | Written off after 42 months | |
| Invoice amount | £10,000 | ||
| Market value at time of loss | £8,000 | £4950 | £2500 |
| Outstanding finance at time of loss | £9200 | £5250 | £3300 |
| Settlement amount (Market value at time of loss less £250 excess) | £7750 | £4700 | £2250 |
| Shortfall covered by GAP (Invoice amount less market value at time of loss) | £2000 | £5050 | £800 |
| Shortfall paid to finance company (Outstanding finance less market value at time of loss) | £1200 | £300 | £800 |
| Paid to owner | £800 | £4750 | £0 |
Don’t forget the invoice amount does not include extras, like warranties, service plans or VAT.
RTI combined GAP cover generally lasts 36 months, while finance runs for 60 months.
This policy is good for car owners buying with finance because if the vehicle is written off, the finance is paid up and the money for a replacement car is available.
Return-to-invoice (Invoice Price Protection)
This GAP insurance pays the difference between the car’s invoice amount and the market value at the time of loss.
RTI GAP cover usually lasts 36 months.
This RTI cover is for drivers buying a car with a large deposit or single payment, as the money is available to replace the car if the vehicle is a write-off.
| Written off after 6 months | Written off after 30 months | |
| Invoice amount | £10,000 | |
| Market value at time of loss | £8,000 | £4950 |
| Settlement amount (Market value at time of loss less £250 excess) | £7750 | £4700 |
| Shortfall covered by GAP (Invoice amount less market value at time of loss) | £2000 | £5050 |
Finance GAP Insurance
Finance GAP insurance is for vehicles bought with borrowed money. The payment covers the difference between the vehicle’s market value and any outstanding finance at the time of loss.
| Written off after 6 months | Written off after 30 months | |
| Invoice amount | £10000 | |
| Market value at time of loss | £8000 | £4950 |
| Settlement amount (Market value at time of loss less £250 excess) | £7750 | £4700 |
| Outstanding finance at time of loss | £9200 | £5250 |
| Shortfall covered by GAP (Outstanding finance – market value at time of loss) | £1200 | £300 |
Other GAP insurances
The GAP motor insurance market is fragmented to cover a variety of vehicles and finance options:
Return-to-value GAP cover
This GAP insurance pays the difference between the vehicle’s market value at the time the policy was bought, instead of the invoice price, and the market value at the time of loss.
This policy is designed for buyers purchasing used vehicles privately or those who have owned their vehicle for several months.
Equivalent Vehicle/Replacement GAP insurance
This GAP policy covers the cost of a replacement vehicle with the same make and model or equivalent. Normally, the insurance extends only to former demo vehicles.
Lease GAP
This covers contract hire or leased vehicles
Special GAP policies
An array of other GAP policies are on the market. Cover includes provisions for VAT or the maker’s list price increasing after the purchase of a vehicle.
Understanding GAP Insurance
Before buying GAP cover, drivers should take some time to check the terms and conditions of the policy and to decipher the jargon.
Questions to ask include:
- What date does the policy start?
- How long is the vehicle covered?
- Is the time for making a claim limited?
- What are the policy exclusions?
- How much is the market value of the vehicle?
- Is the policy transferable to another vehicle?
- Can I stop the policy?
- How much is any excess?
- How much does the policy cost?
Replacing A Vehicle
Some comprehensive policies will replace a written-off vehicle aged a year or two old. However, some conditions may apply, like when the vehicle was first registered, the mileage at the time of write-off and the general age and condition of the vehicle.
Some GAP policies start when the replacement clause of a standard motor policy expires.
A GAP policy might not pay if the owner has refused a replacement offer under a different policy.
What Is A Vehicle’s Market Value?
A motor insurer and a GAP insurer may have differing views of the market value of a vehicle at write-off.
Always check the amount offered by an insurer with the GAP insurer before acceptance, as the GAP insurer generally considers the other insurer’s offer as too low.
It’s not unusual for the two insurers to negotiate a deal.
Drivers are wise to place their standard motor insurance and GAP cover with two different companies to get the best price.
The purchase market value is the invoice price less VAT and extras, while the market value at the time of loss is the invoice price of the replacement vehicle.
GAP Exclusions
GAP policy exclusions will vary between providers, but the most common include:
- Dealer-fitted accessories as they may not have any value at the time of loss
- Warranty costs
- Fuel
- Paintwork protection products
- Insurance premiums
- Road fund licence costs
- Charges for excess mileage
- Finance arrears
- Other additional amounts included in the invoice
Do I Need GAP Insurance?
GAP insurance isn’t essential as your insurer should pay for a replacement car of a similar age and condition.
Consider GAP insurance if you’d want to buy a new car to replace your old one or if you have a finance deal and would owe more to the finance company than you’d get from the insurer.
What Is GAP Insurance And Do You Need It FAQ
Can I buy a better car by adding to the GAP payout?
Yes, you can keep the cash balance once the insurer has settled the payout or add to the funds to buy another car.
Does GAP cover works vans?
GAP insurance is available if you are self-employed and have a van for work.
Does GAP cover a camper van?
Yes, GAP insurance can cover purchased or leased camper vans.
I already own a car, can I buy GAP cover?
Yes, look at Return-to-Invoice GAP insurance.
What does GAP stand for?
GAP stands for ‘guaranteed asset protection’, where the asset is a motor vehicle.
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