GAP Insurance Types Explained

The amount you receive depends on your policy type. See below for more details.

Typically you will receive a payout that in addition to your motor insurer's settlement equals

• What you still owe on the car (finance GAP)
• What you paid for the car (RTI or return to invoice)
• What the car was worth when you took out the GAP policy (RTV or return to value)
• What it would cost you to buy the car now (new car or vehicle replacement GAP)
• Or a combination of the above

You buy a brand new car for £12,000.
You take out a fully comprehensive insurance policy with £250 excess
After three years you have an accident and the car is a write off
The insurer values the car at £4,500 which you are paid less the excess ie £4,250
This may well not be enough to pay your outstanding finance - which you would still be required to pay - and would not be enough to buy another new car

What to consider

The chance of total write off or theft is small, but the implications of having outstanding finance to pay or no car maybe big. Whether you need GAP depends on weighing up these two aspects.

• You bought your car new and your car is less than 12 months old and your motor insurer offers 'new car replacement' during the first 12 months of ownership.
  However to qualify for RTI or New Car Replacement policies you usually need to take out the policy within a few months of the original purchase. The insurer may let you defer your start date until after the 12 months end or take into account your motor insurer's cover when calculating the premium
• Your finance agreement covers you for the difference between the 'book price' (market value of the car) and how much you paid.
• You could afford to make up for any difference between the outstanding finance and the insurers payout or you could afford to buy another car (more typical if you have a low loan amount and high deposit)

Excess Cover: the amount the GAP insurer pays towards your motor insurer's excess - typically max £250

Maximum level of cover: eg the difference between the motor insurer's payout and the amount you want covered by GAP. Typical maximum £25,000.

Maximum value of vehicle insured: there is usually a maximum value of vehicle that GAP insurers will cover

The length of time you want to be insured: typically 1-5 years. With finance gap this is only required for the length of time where your finance exceeds the value of your car.

Inclusion of dealership fitted extras: check whether the insurer covers the cost of these extras for Return to Invoice and new car replacement policies

The age of the vehicle that you want to cover: each insurer will specify a maximum age - typically a car older than 10 years cannot be covered.

Time taken to settle claims after motor insurer's settlement: you remain responsible for paying any outstanding finance until you have the insurance settlement to repay your finance so a speedy settlement time is helpful.

Transferability: if you decide to change your car before the end of your GAP policy whether there is a cost to transfer the policy to your new vehicle

Theft with keys: if your car keys are used to steal your car this may be an exclusion on some policies for claiming your GAP payout.

Cooling off period: this can vary from 14 to 30 days. Check your policy. You can cancel your policy within this time and receive a refund of the premium paid.

Refunds: some GAP policies will give a pro rata refund if you end the policy after the cooling off period - eg if you sell your car or decide you no longer want the insurance. If you transfer the policy to your new vehicle this may be treated differently.

GAP won't cover

• amounts deducted by your motor insurer. Eg deductions for unpaid premiums, salvage value or contributory negligence.
• any non-standard extras added after you bought the car, eg speakers, satnav. Check the GAP policy regarding dealer fitted accessories
• Warranty charges, insurance premiums, road fund licence and any other warranty or add-on in most cases.

GAP only covers the difference between the market value and the insured amount. If your motor insurer offers you less than the market value of the car, and you accept, the GAP insurer won't make up the difference. (You must contact your GAP insurer as soon as possible before you agree any settlement with your motor insurer. However the the payout will not usually be made until your motor insurer has settled in full.)

Money Advice Service GAP information

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Information Leaflet