GAP Insurance UK: What It Covers, Costs, and How It Works
Purchasing a car is often one of the most significant financial commitments for many individuals. However, what most car owners may not realize is how quickly their vehicle loses value once it leaves the dealership lot. According to Moneyhelper, new cars typically depreciate by 15-35% within the first year and up to 50-60% after three years. This rapid depreciation can leave you financially vulnerable if your car is written off due to theft, accident, fire, or flood.
In such situations, your comprehensive car insurance will only cover the current market value of the vehicle at the time of the incident, which may be significantly lower than what you originally paid. This is where GAP insurance becomes essential. GAP insurance bridges the shortfall between the insurance payout and either the original price you paid for the vehicle, the cost of a replacement car, or any outstanding finance on the vehicle.
This guide will walk you through everything you need to know about GAP insurance: what it is, the different types, how it works, what it covers, exclusions, costs, and how to make a claim.
What is GAP Insurance?
GAP insurance, officially known as Guaranteed Asset Protection, is a specialized vehicle insurance policy designed to protect car owners from financial losses caused by vehicle depreciation in the event of a total loss. Unlike standard car insurance, which only pays the market value of the vehicle at the time of the incident, GAP insurance covers the "gap" between this payout and either:
- The original invoice price you paid for the car
- The cost of replacing the vehicle with a new equivalent model
- The remaining finance or lease amount on the vehicle
Example:
Imagine you purchased a new car for £25,000, and three years later, it's valued at only £12,000. If the car is written off, your insurer will pay £12,000, but if you still owe £18,000 on your finance agreement, you will face a £6,000 shortfall. GAP insurance would cover this gap, ensuring you're not out of pocket.
GAP insurance is particularly valuable for:
- New car buyers: Vehicles depreciate rapidly, especially in the first few years.
- Those with finance agreements: If you owe more than the vehicle's current value, GAP insurance ensures you aren't left paying the difference out of pocket.
- Leased car drivers: Some GAP policies cover the outstanding lease payments owed to the lender.
What are the Different Types of GAP Insurance?
There are several types of GAP insurance available in the UK, each designed to cater to specific vehicle ownership and finance situations. Understanding the differences can help you choose the right policy for your needs.
1. Finance GAP Insurance
This type of policy covers the shortfall between your insurer's payout and the remaining balance on your car finance or hire purchase agreement. It's particularly useful for buyers with long-term repayment plans or high-interest car loans. However, it typically does not cover negative equity (when the amount owed exceeds the car's value due to rolled-over debt from a previous loan).
2. Return to Invoice (RTI) GAP Insurance
RTI GAP insurance bridges the gap between your insurer's payout and the original invoice price you paid for the vehicle. This policy is ideal for new or nearly new cars purchased within the past 6 months from a VAT-registered dealer. It ensures that if your car is written off, you will recover the full purchase price or the remaining finance amount, whichever is higher.
3.Return to Value (RTV) GAP Insurance
Designed for used cars or vehicles purchased through private sellers, RTV GAP insurance covers the difference between your insurer's payout and the car's value at the time you first took out the policy. This type of policy is a great option for buyers of older vehicles, as it provides protection based on the car's initial value under the GAP policy.
4. Vehicle Replacement GAP Insurance
This policy covers the difference between your insurer's payout and the cost of replacing your car with a brand-new equivalent model of the same make and specification. It's particularly beneficial if car prices rise or discounts available at the time of your purchase are no longer applicable. Vehicle replacement GAP insurance ensures you don't lose out due to depreciation or price increases.
5. Lease GAP Insurance (Contract Hire GAP)
For leased vehicles, this policy covers any outstanding rental payments or early termination fees if the car is written off. Some policies also include the initial deposit paid at the start of the lease. This type of GAP insurance is ideal for those who don't own the vehicle outright and want to avoid financial losses associated with lease agreements.
6. Negative Equity GAP Insurance
Negative equity GAP insurance provides coverage when the amount owed on your finance deal exceeds the car's market value. For example, if you rolled over debt from a previous loan into your current agreement, this policy can help cover the difference. It's particularly helpful for those in complex financial situations.
How Does GAP Insurance Work?
GAP insurance provides financial protection by covering the shortfall between your car's market value at the time of a claim and the amount you originally paid, still owe or need for a replacement vehicle - depending on the policy you choose. Here is how it works step by step:
Step 1: Purchasing Your Car and GAP Insurance
- You buy a car, either outright, on finance, or through a lease.
- You take out a GAP insurance policy tailored to your needs. GAP insurance is the most purchased for new cars but can also apply to used vehicles. Policies are typically taken out within a year of purchase.
Step 2: Filing a Claim on Your Comprehensive Car Insurance
- If your car is written off due to theft, accident, fire, or other incidents, your standard car insurance will pay the current market value of the vehicle. This payout reflects depreciation, which can be significant for newer vehicles.
Step 3: Activating Your GAP Insurance Coverage
- After your comprehensive insurer approves the claim and offers a payout, you contact your GAP insurance provider. Be sure to notify them before accepting the settlement from your main insurer, as some policies have time limits for claims.
- Your GAP policy covers the financial shortfall based on its terms: the difference between the market value and the invoice price, outstanding finance, or replacement cost.
Example Scenario:
- Original car purchase price: £30,000
- Market value at the time of accident: £18,000
- Outstanding finance: £22,000
- Standard insurance payout: £18,000
- GAP insurance payout: £4,000 (to cover the finance shortfall)
Step 4: Receiving Your Pay-Out
- Once both claims (car insurance and GAP insurance) are approved, you receive two payouts: one from your standard insurer for the car's market value and another from your GAP insurer to cover the gap, as defined in your policy.
- If your vehicle was purchased on finance, the GAP insurance provider may pay the remaining loan amount directly to your finance company.
Step 5: Resolving Disputes
- If your GAP insurance claim is denied or you disagree with the outcome, follow your insurer's complaints procedure. If unresolved, you can escalate the issue to the Financial Ombudsman Service for assistance.
GAP Insurance: What's Included and What's Excluded
GAP insurance provides financial protection in the event of a total loss of your vehicle due to theft, fire, flood, or an accident. It covers the gap between the insurance payout and the remaining finance or replacement costs. However, certain exclusions apply, such as partial damage, mechanical issues, and non-standard modifications. Below is a table outlining what is covered and what is not covered under typical GAP insurance policies.
| S.No. | What is Covered | What is Not Covered |
|---|---|---|
| 1 | Total loss due to theft, fire, flood, or accidental damage. | Partial damage or minor repairs don't result in a write-off. |
| 2 | Difference between insurer's payout and outstanding finance owed. | Mechanical or electrical failures unrelated to total loss. |
| 3 | Replacement costs, including any price increases since purchase. | Outstanding penalties or overdue finance charges. |
| 4 | Contribution toward car insurance excess (up to a specific limit). | Negative equity from previous vehicle trade-ins. |
| 5 | Return to Invoice (RTI) - difference between market value and original invoice price. | Non-standard aftermarket modifications (e.g., custom exhausts, alloy wheels). |
| 6 | Vehicle Replacement - covers difference between market value and replacement cost of a new car (same make/model/specification). | Third-party insurance coverage (theft or damage is not covered under third-party policies). |
| 7 | Contract Hire - covers difference between insurer's payout and remaining lease payments, including early termination fees in case of total loss. | Cars are used for business, hire, reward, or commercial purposes. |
| 8 | May cover excess fees (e.g., up to £1,000 in some cases). | Vehicles over 10 years old or with more than 100,000 miles. |
| High-value vehicles may also face limitations. |
Important: Always check the policy for exclusions and coverage details.
How Much Does GAP Insurance Cost?
The cost of GAP insurance in the UK varies based on:
- Vehicle Value: Higher-value cars cost more to insure.
- Policy Type: Return to Invoice (RTI) policies are typically more expensive than Finance GAP.
- Duration: Policies generally last 1-5 years, with longer terms costing more.
- Provider: Dealerships tend to charge higher premiums than independent insurers.
On average, GAP insurance costs between £100 and £400 for a 3-year policy. It's available from dealerships, insurance providers, finance companies, and brokers. Compare providers for the best deal.
How Do I Make a GAP Insurance Claim?
If your vehicle is declared a total loss, the process of claiming GAP insurance is straightforward. Follow these simple steps to ensure you receive the necessary payout to cover any shortfall between your insurer's settlement and what you owe or paid for the vehicle.
- Notify your car insurer: Report the total loss (e.g., theft, accident).
- Contact your GAP provider: Inform them about the settlement.
- Submit documents: Provide necessary documents such as:
- Receive payout: Once the claim is approved, your GAP insurance will cover the difference between your insurer's payout and what you originally paid or owe.
a. Insurance settlement letter
b. Vehicle purchase invoice
c. Finance agreement (if applicable)
GAP Insurance: Why Warranty Direct is Your Best Choice
Car depreciation is inevitable, but financial loss doesn't have to be. That's where Warranty Direct's GAP Return to Invoice insurance comes in-offering you a safety net when you need it most. Whether your vehicle is written off due to an accident, theft, or fire, GAP insurance ensures you're not left covering the shortfall between your insurer's payout and the amount you originally paid or still owe.
What Makes GAP Insurance Essential?
The moment you drive a new car off the forecourt, it starts losing value. In just a few years, your vehicle's market price can drop significantly meaning a standard insurance payout may not be enough to cover your remaining loan or lease. GAP insurance fills that financial gap, so you're never at a loss.
Warranty Direct: Your Trusted GAP Insurance Partner
Choosing the right provider matters, and Warranty Direct offers more than just a policy-we offer peace of mind. Here's why our GAP Return to Invoice insurance stands out:
- High Claim Payouts - Unlike some providers, we ensure you receive a claim amount up to £50,000, covering outstanding finance or the original invoice price.
- Fast & Transparent Process - No hidden clauses, no complicated paperwork-just straightforward protection when you need it.
- Proven Trust & Reliability - Thousands of UK drivers rely on us for their vehicle protection, making us a leading name in the industry.
GAP Insurance FAQ
1. How does GAP insurance work on a financed car?
GAP insurance covers the difference between your car's current market value and the outstanding finance balance if your car is written off or stolen.
2. Can I take out GAP insurance after 12 months?
Yes, you can still purchase GAP insurance within a year of buying your car, but it's often recommended to buy it at the time of purchase.
3. How long does GAP insurance last for?
Typically, GAP insurance lasts between 1 to 5 years, depending on the policy you choose.
4. Does GAP insurance cover the car or the driver?
GAP insurance covers the vehicle, not the driver. It helps with the financial shortfall when your car is written off or stolen.
5. Does GAP insurance replace normal insurance?
No, GAP insurance is designed to complement your standard car insurance, covering the gap between your insurer's payout and what you owe.
6.Does GAP insurance cover a write-off?
Yes, GAP insurance covers the difference between your car's insurance payout and the amount needed to pay off your finance or replace the vehicle if it's written off.
7. Is GAP insurance a legal requirement?
No, GAP insurance is not a legal requirement, but it is highly recommended, especially if you have outstanding finance or lease payments.
Conclusion
GAP insurance is an essential safeguard for car owners in the UK, especially those purchasing new vehicles, financing a car, or leasing. It helps protect against depreciation, ensuring you don't face a financial shortfall if your car is written off. With Warranty Direct's GAP Return to Invoice insurance, you get reliable coverage tailored to your needs, whether you want to protect a newly purchased car, cover outstanding finance, or secure the full invoice price.
Beyond GAP insurance, Warranty Direct also offers comprehensive car warranty solutions to shield you from unexpected repair costs. Whether you own a petrol, diesel, hybrid, or electric vehicle, our warranties provide extensive coverage, ensuring you drive with confidence and financial security. By combining Warranty Direct's car warranty and GAP insurance, you can enjoy complete peace of mind, knowing both repair expenses and depreciation risks are taken care of.
