GAP insurance – it stands for Guaranteed Asset Protection – has become increasingly popular with increasing numbers of cars bought on finance. But it doesn’t work for everyone. Depending on your GAP insurance quote, if you’re buying a car it’s worth working out whether you need it.
How does GAP insurance differ from regular cover?
Your motor insurance is designed to pay out if your car is stolen or declared a total loss (written off) in a crash. Motor insurance pays the value of the car when it was written off. GAP insurance is designed to bridge the difference – the gap ‑ between your motor insurance pay out and what it will cost to replace your car.
She might not be quite as cheery if she needs GAP insurance and doesn’t have it
How does GAP insurance work?
Imagine you buy a car worth £20,000 on a three-year finance deal. If it is written off in your second year of ownership, the insurer might declare its market value to be £12,000. That’s what it would pay out. However, that won’t be enough to buy you a new car. It’s unlikely to be enough to buy an equivalent car to the one that was written off. And it probably won’t pay what you owe the finance company. GAP insurance should make up the difference between your motor insurance pay out and what it might cost to replace the car. It should clear your debt with the finance company and enable you to start again.
When do you need it?
If you’re buying a car on finance, it’s well worth considering GAP insurance. Buy a policy and you’ll know that if you write your car off you won’t be paying a finance company for a motor you no longer have.
When don’t you need GAP?
It really depends on your car and your motor insurance. For brand new cars, it’s worth checking your motor cover before buying expensive GAP. Many policies guarantee a like-for-like replacement in the first 12 months of ownership. For older cars that lose value very slowly, it’s also probably not worthwhile.
It’s unlikely to be worth paying for GAP insurance on an older car like this Mk1 Mazda MX-5
What to look out for if you do buy GAP
Unfortunately, there’s more than one sort of GAP insurance. Ideally you want a policy that claims ‘return to invoice’. Some companies insert clauses designed to enable them to weasel out of paying up. If a policy cites ‘market value’ or ‘insured value’, steer clear. Equally, if one talks about ‘pre-accident damage’ or ‘pre-approval’ or ‘limited settlement periods’ avoid them. These are all designed to ensure the GAP insurer doesn’t pay out the full amount and you may well still be out of pocket once all your insurance has paid up.
Do you need GAP insurance?
Insurance expert Peter McKenna, managing director of GAP suppliers AMS Group explains: “GAP provides very worthwhile cover, but only if you choose the right policy. As onerous as it might sound you do need to read the full policy wording. The old adage of insurers giving it to you in the big print but taking it away in the small is sadly very relevant in many GAP policies.”
I’ve been writing about cars and motoring for more than 25 years. My career started on a long-departed classic car weekly magazine called AutoClassic. I’ve since pitched up at Autosport, Auto Express, the News of the World, Sunday Times and most recently the Daily Telegraph. When I’m not writing about cars and motoring, I’m probably doing some kind of sport or working in my garden.
