Having your car written off or stolen is bad enough but just to make matters worse, when you’re insurance pays off, there’s likely to be a potentially drastic shortfall between what you get and what you actually paid for your vehicle in the first place.
Guaranteed Asset Protection (Gap) insurance protects you against this shortfall so while you may have to let go of your pride and joy, you should be able to afford a replacement without being out of pocket.
In this guide:
How does Gap insurance work?
As stated above, a Gap insurance policy will cover you for the shortfall between what your car insurance policy pays off and what you initially paid for your vehicle in the event of a write off.
Unfortunately, cars tend to depreciate in value at a rather alarming rate as soon as they are driven out of the dealership. Indeed, experts as Which? Car reckon that many brand new cars find their value severed by up to 66% over three years.
So if you paid £12,000 for your car, then after three years, you have an accident and it is written off, due to depreciation you might only receive £4,000 from the insurer. A Gap insurance policy will help you make up the £8,000 difference, helping you either buy a new car outright or to settle up what is left on any finance deal you may have.
There are various different types of Gap insurance that each work in slightly different ways.
Return to Value (RTV) cover is the most basic kind, and can only be taken out on a car bought at least three months ago but will pay out the difference between what your insurer pays out and the value of the car at the time the Gap policy was taken out.
Next up is Return to Invoice (RTI) cover, which can be taken out on cars bought less than three months ago, and will pay out the difference between the valuation and the price originally paid for the car.
Third is Vehicle Replacement Insurance (VRI), which will make up the shortfall up to the price of a brand new car, even if this is higher than what you paid for it. These policies can only be taken out on new cars.
Should I get Gap insurance?
Statistics from the RAC show that every year, half a million cars in the UK are written off, and a further 120,000 are stolen. Gap insurance then could help a significant number of people get back on their feet (or rather, their wheels) after a bad accident.
There are often various conditions that your car should meet in order for you to be able to take out a Gap insurance policy. Following on from the conditions attached to each of the individual types of policy described above, many companies will require cars to be under a certain age or mileage before they agree to cover the driver.
Generally, your car should be under seven years old, and shouldn’t have done more than 80,000 miles. But this is only a guideline, and you may find that some providers will insure an older vehicle – it always depends on the specific provider and so you should always shop around for quotes.
Recently, the Financial Conduct Authority (FCA) conducted an investigation after figures revealed that only 10% of the money invested in Gap insurance policies by drivers was actually paid out. This led to a general questioning of the value for money associated with such policies, as well as into the potentially forceful sales tactics of car dealers selling Gap insurance along with the vehicle.
The general gist of the subsequent FCA’s proposals is to make sure that customers are sufficiently informed about the insurance products they are offered.
Gap insurance can be incredibly helpful, a lifeline even, but no one wants to be ripped off so make sure you stay informed, and only pay for the policy you know you’ll actually need in the future.
Can I get cheap Gap insurance?
As with any kind of insurance, Gap policies come in various shapes, sizes and costs, so you should always shop around and have a clear idea of exactly what kind of cover you want before you jump straight in.
By going through our guides like this one, and by comparing quotes using our free and impartial car insurance comparison tool, you’ll find just what you need at a fair price.