What is GAP insurance and how much should you pay for it?

Nine out of 10 new car buyers are paying too much when they take out GAP insurance, which covers the full cost of replacing the car after an accident or theft. We take a closer look...

What is GAP insurance and should you buy it?

If your car is stolen or written off, most car insurance policies will only pay out its current market value, not the amount you paid for it. When you consider that the average new car loses around 40% of its value by the time it’s a year old and 60% once it’s three, it’s clear that you could end up seriously out of pocket.

That’s where guaranteed asset protection (GAP) comes in. It’s an additional form of insurance that runs alongside your standard policy, covering the difference between the amount your main insurer will pay out and either what you paid for the car (return to invoice, or RTI, cover) or the amount you’ll need to buy a comparable new replacement (vehicle replacement cover). It also pays off any outstanding finance or lease payments.

What is GAP insurance and should you buy it?

In theory, GAP insurance is a good thing, but most people are paying too much for it because they’re buying it from dealerships rather than going directly to insurance companies. GAP insurance is bought by around 26% of new car buyers, and 91% of those do so through dealers. According to the Financial Conduct Authority (FCA), more than half of GAP insurance fees on these policies go to the dealership as commission.


Should you buy GAP insurance?

You don’t have to buy GAP insurance at all, and the likelihood of you having to claim on it is very small. Only 1% (384,000) of the UK’s 31.7 million cars are written off each year, and many of those are older vehicles that are scrapped because they would cost too much to repair.

You might not need GAP insurance for the first year after buying a new car, because many car insurance policies will provide a replacement if the car is written off in that time anyway.

If you do want to buy it, doing so sooner is better, because some GAP insurance providers will only sell cover for cars that are less than three months old. In those instances, they should allow you to defer the cover for a year.

There are certain situations in which GAP insurance could be worthwhile, whether you’re buying a new or used car. They are:

1. Bought on finance

If you’ve bought your car on finance by signing up to a personal contract purchase (PCP) scheme, using hire purchase (HP) or taking out a large personal loan, GAP insurance will cover the big shortfall you could struggle to make up if the car is declared a total loss.

Get a GAP insurance quote now >

2. Bought a car that'll lose value fast

If the car you’re buying is one that will suffer steep depreciation, taking out GAP insurance is sensible, because it will help to make up the difference between the insurance payout and the potentially sizeable cost of replacing the car.

3. Bought on a lease

If you’ve taken out a long-term lease for a car that is subsequently stolen part-way through the lease. You could be landed with a hefty bill for any outstanding payments, as well as the cost of replacing the car, so GAP insurance will help to protect you in this scenario.


GAP insurance - what should you watch out for?

The five key things to look out for are: length of cover, excess, any exclusions, claims process and cancellation process.

If one policy looks far cheaper than the others, check that the cover isn’t restricted by a very short limited claim period. For example, there are some that prevent you claiming if your car is stolen and not recovered within a period of as little as 30 days.

What is GAP insurance and should you buy it?

Pre-approval is something to watch out for, too. It stops you accepting an offer from the car’s main insurer without the consent of the GAP insurer, and could be used by the GAP company to delay its payout to you by repeatedly rejecting the insurer’s offers.


How much should you pay for GAP insurance? 

To find out just how big the difference is between the prices charged by dealerships and insurance companies, we got GAP insurance quotes for four What Car? award-winning models: the BMW X5, Kia Sorento, Seat Leon and Volvo XC40.

According to our research, GAP insurance can cost up to 61% more from a franchised dealer. The dealerships we approached offered RTI policies only, so that’s the cover we sought quotes for from insurers too. A three-year RTI policy for a new Leon cost £141 from Insure the Gap and £359 from Seat.

GAP insurance for all four of the cars we researched was significantly more expensive from a dealer. In all four instances, it was cheaper to buy vehicle replacement cover from insurers than it was to buy RTI cover from dealers.

 

Cost of a three-year GAP policy for a new car

Car Seat Leon 1.5 TSI 130 Evo FR Kia Sorento 1.6 T-GDi HEV 2 BMW X5 xDrive
45e M Sport
Volvo XC40 T3 R-Design Geartronic
List price £24,065 £39,100 £69,915 £34,080
ALA £186 £293 £329 £228
Direct Gap £169 £219 £299 £219
Gap Insurance £165 £197 £298 £197
Insure The Gap £141 £203 £313 £203
MotorEasy £154 £199 £338 £199
Total Loss Gap £145 £188 na £185
Dealer Gap price £359 £389 £699 £399

What Car? says…

The FCA tried to tackle the problem of car buyers paying too much for GAP insurance in 2017 by making it compulsory for showroom staff to give car buyers a two-day cooling off period after informing them about products such as GAP.

If the customer decides to buy it, they can’t do so for two days. Follow-up research by the FCA in 2018 showed the change reduced the number of policies sold overall by 23% and had a marginal reduction in the proportion sold by dealers.

However, it’s clear that more needs to be done to prevent new car buyers from paying over the odds for GAP insurance. In the meantime, vote with your feet: don’t buy a policy from a franchised dealer without first checking prices for comparable cover from a range of independent suppliers. And if you do decide to buy, read the terms and conditions fully to check that there aren’t any nasty restrictions.


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