GAP Insurance Types Explained
Want a better understanding of GAP insurance (Guaranteed Asset Protection insurance)?
GAP insurance covers the scenario when your motor insurer decides your vehicle is a total write off or it it is stolen and not recovered . GAP covers the shortfall, if any, from your motor insurer's settlement and the amount covered under your GAP insurance. See our explainers for more information
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)
Finance GAP insurance
Available for: New and used cars, with outstanding finance greater than the value of the car
The payout in combination with the settlement from your motor insurer would give you: enough to pay off your finance, but provide nothing towards another car (subject to maximum claim limit selected).
Useful where the finance outstanding is much greater than the value of the car. This can occur where:
- You have a paid a small deposit
- You have a long term finance deal
- You bought a brand new car or a car that loses value quickly
- Your finance has a large amount to be paid at the end of the term
- You have a high APR rate finance
- You have a long term contract hire agreement
Return-to-value (RTV) insurance
Available for: New and used cars, with and without finance
The payout in combination with the settlement from your motor insurer would give you: the value of your car when you took out the gap policy (subject to maximum claim limit selected).
The agreed value is usually the market value of your car when you start the GAP policy.
Useful for used cars where you have owned the car for a while, or you do not have the original sales invoice eg where you bought the car privately.
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.)
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