Everything You Need to Know About GAP Insurance: Protecting Your Vehicle and Your Finances

GAP (short for guaranteed asset protection) insurance is designed to cover the difference between the amount your insurer pays if your car is stolen or written off, and the price you paid for it. This is particularly useful if you’ve bought a new car or if you are paying by a finance agreement for a car. GAP insurance works alongside your normal vehicle insurance and is not an alternative to motor insurance. 

This blog post will provide you with a comprehensive understanding of GAP insurance and help you decide if it is the right type of cover for you.

What is GAP insurance and how does it work? 

If you have a claim and your vehicle is a total loss a Guaranteed Asset Protection or GAP insurance policy, as it's better known, will jump into action. Insurers will usually pay the current market value of your vehicle in the event of a total loss, if the car needs to be replaced this can leave you out of pocket and feeling dejected. This is because the value of a new vehicle depreciates quickly, meaning the amount the insurer settles the claim may not be enough to replace the vehicle without you paying the difference, there are also further issues if the car is on a finance deal or a lease vehicle which we will tackle later in this article. GAP insurance covers the difference (or the gap) between the amount your insurance provider pays and the amount you would need to pay to buy a new or equivalent model.

Who needs GAP insurance?

This insurance is beneficial for people who have a new car, a car loan, a lease, or a financing agreement where they owe more money than the actual value of their vehicle. In these cases, if the car is a total loss, they would be left with the financial burden of paying off the remaining loan balance. GAP insurance can protect you against such financial losses. 

You might want to arrange GAP insurance if:

• you want a brand-new replacement car
• you owe money to a car finance company
• your car is an expensive model that depreciates quickly
• your car is no longer worth enough to pay off a finance loan or leasing agreement 

What are the benefits of having GAP insurance?

Your existing motor insurance policy might already pay out the cost of a replacement car of a similar age and condition, so it is important to check your documents as part of your research before you buy GAP cover. 

The benefits of having GAP insurance are that you would be protected against the financial losses that you could incur if your vehicle is a total loss, and the insurance settlement leaves a shortfall between the amount paid and the remaining amount on the lease, loan, or price of a new vehicle.  

What does GAP insurance cover?

GAP insurance comes in three main types, depending on the type of protection you need:

• Back to invoice gap insurance: This covers the difference between the amount you paid for your car or the amount you owe on a car finance agreement, and what your car insurer pays you if your car is stolen or written off.
• Vehicle replacement gap insurance: This covers the difference between what your insurer pays you and what it would cost to buy a brand-new replacement car, or how much the car was worth when you bought it if it is used.
• Contract hire gap insurance: This type of gap insurance is available for those who lease their car. The policy covers the difference between the car's market value and the remaining payments owed on the lease. 

If you’re not sure what sort of cover you need, the best thing to do is to talk to us about your circumstances and we can recommend the right type of cover for you.

How is GAP insurance different from other types of car insurance?

GAP insurance is designed to offer you financial protection under a specific set of circumstances and does not provide any protection for driving your vehicle and would not replace the statutory vehicle insurance that you need to buy in the UK. There is some overlap, if your vehicle is under 12 months old as most fully comprehensive car insurance policies offer 'new car replacement' during the first 12 months for new cars, so if yours does and you are still in this period, you will not need gap insurance. We would be happy to check your current policy for you if you drop us a line.

Can you purchase GAP insurance at any time or only when you first buy a car?

It's possible to purchase GAP insurance even after buying a car, and it's also possible to buy a policy for a used car that's been on the road for several years. However, the primary purpose of GAP insurance is to safeguard you against the depreciation of your vehicle's value from the time of purchase to its current market value, especially when you buy a new car.

Are there any exclusions or limitations with GAP insurance?

Like all types of insurance, there will be limitations and exclusions to each policy, these depend on the insurer and the type of cover you need but broadly speaking there can be the following restrictions;  

• Your vehicle might not be covered unless there is a comprehensive motor insurance policy in place. 
• You may not be able to get GAP insurance for vehicles over a certain value (£75k?) 
• You may not be able to get GAP insurance if the vehicle has done more than 100,000 miles 
• GAP cover may not include modifications to your vehicle.  
• GAP cover may not be available if you use the vehicle for hire and reward.  

We would make sure you are aware of all the limitations, restrictions, and exclusions as part of the quote process so that you can make an informed decision before you buy any form of insurance from us.  

How do you make a claim on GAP insurance?

Making a claim on your GAP insurance is slightly different from making a claim on your motor insurance policy because you have to wait for the motor insurer to declare the vehicle a “total loss”. Once they confirm that they are NOT going to repair or replace your vehicle, instead they are looking to 'write off' the vehicle and make you a market value offer, then you can start your GAP insurance claim. It is important that you do not accept the motor insurers' settlement offer before you contact the claims team at Clarke Dove who will liaise with your GAP Insurers.   

Your GAP policy documents will typically specify a time limit within which you need to contact them. There may be some documentation that the GAP insurer required, and we can help you provide this or request it from your motor insurer. Once the GAP insurer has the documentation, they need to approve the claim, the payment will be made to you, under the terms of the policy.  

It's important to note that your outstanding finance won't be automatically paid off by your GAP policy unless you file a claim, even if you purchased the policy at the same time as your financing or leasing agreement.

Is GAP insurance worth it, and why?

GAP insurance is designed to work alongside your standard car insurance. It’s additional protection if your new, or even second-hand, vehicle is stolen or involved in a traffic accident, resulting in it being written off, then GAP insurance will ensure you don’t face a loss. 

You might assume that your standard car insurance policy covers you in the event of a theft or write-off scenario. In some instances, it will, making gap insurance not appropriate for your needs. However, due to the rapid depreciation of new cars, in many cases, your standard car insurance policy will not fully cover you in the same way.  

GAP insurance will give you peace of mind that you will get enough money to purchase a new car to replace yours in the event it is destroyed or stolen. To avoid any nasty surprises, it’s worth exploring GAP insurance cover, give us a call today at 0115 962 0855.