If you buy a new car, the reality is that it will depreciate as soon as you drive it off the forecourt. According to figures from the AA, new cars depreciate by 40% in the first year and up to 60% over three years, on average.
In fact, car depreciation is a car owner’s biggest cost after fuel. But that’s where GAP insurance comes in. If you’ve wondering what GAP insurance is and whether you need it, read on and we’ll explain all.
What is GAP insurance?
GAP, or Guaranteed Asset Protection Insurance as it’s also known, covers you for the difference between your insurer settlement and the value of your car, if it was written off or stolen.
Without it, the amount given to you by your insurer is likely to be substantially less than what you paid for your car because insurers pay out based on the current value of the vehicle.
GAP insurance works alongside standard car insurance cover, not as its replacement. If you don’t have comprehensive, third party or third party fire and theft cover, you will be breaking the law, unless your car is declared SORN.
Who is GAP insurance for?
Any car owner could benefit from having GAP insurance, but it is really beneficial to car owners who bought their car on finance with a high rate of interest, car owners who are paying their car off over many years and those who have a car that depreciates quickly.
Some GAP policies only accept cars that are under five years old and have done less than 50,000 miles.
If you would be happy with a replacement car that isn’t brand new, you may not feel GAP insurance is necessary. If you have comprehensive cover and your car is less than a year old, check your policy documents. You may find that ‘new car replacement’ is offered as standard.
If you have an older car, it will depreciate slower than a brand new car. This means that the ‘gap’ between what your insurer settlement is and the value of your car could be much smaller, so you might feel able to pay this yourself, rather than taking out a GAP insurance policy.
What are the different types of GAP insurance?
There are five main types of GAP insurance:
Finance GAP insurance
This is a basic type of GAP insurance and helps you pay off any outstanding loans on your car if it's written-off or stolen.
This type of GAP insurance pays out enough for you to get a like-for-like replacement car. It looks at how much the insurer pay-out is and how much it would cost to get a new car.
Return to invoice and financial shortfall protection
This covers the difference between the insurer pay-out and the invoice price provided by your finance company. It includes any early settlement or interest charges.
Return to value
This covers the difference between the insurer pay-out and the value of your car when you took out the cover.
Lease GAP insurance
If you lease your car, this type of GAP insurance will help you pay the rest of your contract and any fees if your car is written off or stolen.
How can I save money on GAP insurance?
Shop around for quotes, don’t just accept the quote offered by your car dealer when you buy your car. An online broker could help find you the best price and get advice on which policy would be best for you. There are specialist GAP insurers too.