Picture this scenario: you take out a personal contract hire deal for a Mercedes C Class which ordinarily costs a cool £40,000. After just a year, you wrap it around a lamp post. You emerge unscathed. The Merc wasn’t so lucky.
Your insurer refuses to cover more than £25,000 because “that’s the going rate for a 1-year-old C-Class these days,” they say. It doesn't matter how good you were at servicing your lease car - it's gone or trashed and now it's time to pay up.
As the registered keeper of the lease car, the leasing company will be anxious to recoup their losses. Without lease GAP insurance, you’d be expected to cough up the remaining cost to lease the car to them yourself. With GAP insurance, your GAP insurer dips into their pockets to pay the difference.
First you need to pick whether you want third party, third party fire and theft, or fully comp. Then you’ve got to think about excesses, courtesy cars, legal protection - the works.
Even when you think you’ve covered all your bases, you’re told that it’s not enough. You’re told that you need to take out even more coverage to shield you against every single eventuality you can dream of.
In this article, we’re going to talk about how GAP insurance fits into all of this. We’re going to explain what it covers, the different types, and where to get it, before answering the fundamental question: is GAP insurance worth it?
What is GAP Insurance?
GAP Insurance stands for Guaranteed Asset Protection. It's a form of car insurance that covers the difference in value between the amount your main car insurance provider will pay out (in the case of theft or total write-off) and how much you originally paid/still owe.
It’s called “GAP” insurance for good reason - it basically covers the “gap” in value between what your insurance will pay out and the money you paid or still owe on the car. GAP insurance is a type of filler car insurance that plugs up the shortfalls of other major insurance policies.
Insurance companies don’t like paying out on policies. Every penny they dole out to drivers is a penny they don’t have to splash out on their Christmas do. To make sure they’re not handing out wads of cash to everyone and anyone who claims, GAP insurers enforce some regulations surrounding your policy:
- You need a fully comp car insurance policy.
- You must have either a stolen lease car or your lease car should be written off.
- It won't cover general lease car repairs, lease car maintenance, lease car return charges, or anything that comes under your lease car warranty.
- It doesn’t cover any deductions made by the car insurance company.
- It doesn't cover the cost of extras, like alloys, spoilers, or fancy sound systems you've added on after purchase.
GAP insurance sounds good but at the end of the day, it is another expense coming out of your savings. If you get to the end of your lease deal or finance contract and you haven’t had to make a claim, you’ve basically spent a few hundred pounds on nothing. Let’s take a look at whether you really need GAP insurance.
What is the best GAP Insurance for you?
There are loads of different types of GAP insurance. The type of policy you shell out for will depend on the age of your car and how you purchased it (whether it be on a finance agreement, leasing, or bought outright). Let's have a look at the best GAP insurance available to you.
Finance GAP insurance
Imagine you wake up one morning and find your driveway empty. Your leased Audi TT has vanished. A few days later, the police rock up at your door with some good news and some bad news.
Good news: they found your car.
Bad news: it’s completely mangled.
More bad news: your leasing company wants you to make your remaining payments.
More good news: if you have finance GAP insurance, it will cover your financial obligations to the leasing company. You don’t need to scramble together money every month to pay off a car you can’t even drive anymore. You’re in the green.
If you're paying for your car on a leasing or credit agreement, finance GAP insurance should be your go-to.
Essentially, finance GAP insurance pays the difference between the insurance pay out from your primary insurer and the amount you still owe the finance company/leasing broker at the time of the write-off.
Return to Value GAP insurance
Return to Value (RTV) is a type of gap cover that fills in the gap between how much your insurer pays out (market value at the time of the accident) and the market value of your car at the time you purchased it, but not exactly what you paid for it. It pays the cost of depreciation, so you’re not left penniless.
Say you decide to fork out £50K on a shiny new Porsche 718 Cayman. It normally costs £45K, but you’ve thrown heated seats, custom alloy wheels and a built-in sat nav into the mix. Three years down the line, your insurer writes your car off and panic stations arise. They will give you £25K, the current market value of the car without extras, to cover the damage, final offer.
If you add RTV GAP insurance to your insurance stack, you’re wrapping yourself in an extra layer of protection. The insurance will make up the remaining money to the original value of the car, which was £45K. Your out of pocket by £5K, but at least it’s better than £20K.
Vehicle Replacement GAP insurance
Vehicle Replacement GAP insurance covers the difference between the write off insurance pay out and the amount it would cost to buy the same model of car with the same specifications at the time of the accident, not at the time that you bought it.
See that Ford Fiesta you have on lease that you’ve been driving around for a couple of years? If you were to be driven off the road tomorrow, leaving your car to become a pile of scrap metal, vehicle replacement GAP ensures that you’ll get another fiery Fiesta that is two years old, has the same mileage and is the same trim. It’ll be like nothing has changed!
Car prices are always rising and falling, so this GAP insurance is really handy. Sometimes, the amount you initially paid for your car would not be enough to pay for a similar one today.
Taking out this GAP cover means you won't need to downgrade your next car.
Return to Invoice GAP insurance
With Return to Invoice (RTI) GAP insurance, your gap insurer covers the difference between your main insurer's pay out and the amount you originally paid for the car.
In 2015, you bought a brand new entry model Mini Clubman for £19,995. If you wanted to buy that model today, it will set you back £21,200 at least.
If your Clubman is destroyed by a local gang on a joyriding adventure, your insurance company will pay you out your Clubman’s current depreciated valuation. Your RTI GAP insurance will make up the rest, boosting your pay out to match your original invoice, not what it would cost to buy new today.
Is GAP Insurance worth it?
You might think your car is safe from theft or severe damage, but the reality is that we can’t really predict these things. Over 110,000 cars were stolen in 2018—roughly 300 every single day! If these drivers didn’t have GAP insurance, they may have been in for a nasty shock when they saw the pitiful amount their main insurers were prepared to lay on the table.
And if you avoid the thieves, you’ve still got to think about crashes. One car is written off every 90 seconds—and there’s no way to prepare for it!
With GAP insurance available in multiple forms, you'd think it was suited for just about everybody. But is GAP insurance worth it for all car owners?
Reasons to get GAP Insurance
You don’t have to take out GAP insurance but driving a car without it is a bit like playing high-stakes poker. Sure, you might win, saving yourself a bit of cash. But you might also end up with a busted flush.
One of the biggest attractions of GAP insurance is depreciation. Cars depreciate in value—and fast. In fact, within their first year, they'll lose around 40% of their original value.
Let's look at an example. You buy an Audi A3 to the tune of £20,000. After 12 months, it has depreciated in value by 40%, or £8,000, of its ticket price. That’s a couple of (big) weeks in Ibiza! Your main insurer won’t cover this.
A GAP policy gives you strong protection insurance against this evil depreciation force, covering this £8,000.
Additionally, if you signed up for a contract hire deal or you're hooked into a car finance agreement, GAP insurance acts as a safety net for you, providing you with the funds to pay off your outstanding finance or lease payments quickly. You won't be left paying off a car that you can't even drive anymore. This is a lifesaver if your agreement had you paying high levels of interest or you were riding around in a particularly quickly-depreciating car.
GAP insurance really pays off if you're at risk of losing a significant amount of money if your car is a write-off or stolen. If you have a fairly new car or you're in a contract to pay off your vehicle, seeking out GAP coverage is definitely a good move.
If you've been allowed to designate a car lease guarantor and you are unable to cover the cost of the car, they will have to fork out, so think of them too!
Reasons not to get GAP Insurance
Despite the protection that GAP insurance can give car owners, it's definitely not for everyone.
For example, if you have comprehensive insurance coverage and your car is less than a year old, your insurer might have to pay for a brand new replacement car for you. In this case, car GAP insurance would prove meaningless. If you’re not sure if this applies to you, glance over your policy T&Cs.
Similarly, if you're on a finance agreement, some providers might already include coverage for the difference between the official value of your car and how much you initially paid for it. Again, in this instance, GAP insurance will not offer you anything extra.
If you own an older car, it will depreciate much more slowly. This means that you'll have a small gap in the amount that your insurer pays out, so your GAP insurance will not make much of a difference.
Deciding if GAP insurance is really worth it will depend on your particular situation. Consider the depreciation rate of your car and what existing coverage you have with your main insurers or finance company/leasing broker when deciding if it's right for you.
Where can I get GAP Insurance?
You’ll know the feeling well. You’re trying to escape from the car dealership but they keep throwing information at you, desperate to upsell. “Have you thought about GAP insurance?” they call to you as you edge closer to the door.
You could give in and sign up for GAP insurance from your car dealership or a specialist broker. Or you can follow the advice of the Financial Conduct Authority (FCA), who recommends taking a little extra time to shop around for the best GAP insurer.
GAP insurance costs can vary dramatically from provider to provider so be money-smart and hunt around for a decent gap insurance quote that provides the level of cover you need, properly covering your car’s value.
You’re looking somewhere in the region of £100-300 for three years worth of coverage. This is a relatively small investment that will save you some big bucks in the long run if you do find yourself in a tricky situation. Just picture the scene: a totalled Volkswagen Golf, lying in pieces by the side of the road. You receive a tiny insurance payout that barely makes a dent in your remaining payments. You’ll be kicking yourself.
So, is GAP Insurance worth it then?
At the end of the day, GAP insurance is worth it if you’d be faced with an eye-watering bill if your car is written off or stolen. GAP insurance is a back-up which covers the gap between what you paid for your car and what your car insurer is prepared to payout. It's particularly valuable for those with quickly-depreciating newer car models or those in finance agreements, like PCP, PCH, or BCH.
On the other hand, GAP insurance is not worth it if you have a very old car model or if you already have similar coverage from your insurer or finance company to cover major costs of replacement.
If you need that safety net, GAP insurance can give you some much-needed peace of mind. It's a great buffer if you find yourself car-less and struggling to cough up the cash to replace it.
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