What are the different types of GAP insurance?

If you are driving on UK roads you will be very familiar with vehicle insurance that protects you, your vehicle and others in the event of an accident. But you could also benefit from additional GAP or guaranteed asset protection insurance. Many people miss out on this protection simply because they are still asking what is GAP insurance. But this guide will show you how you can use it to protect the money you invest in your vehicle, particularly if you bought it through finance or lease. 

GAP (guaranteed asset protection) insurance, as the name suggests is designed to protect your assets by covering losses stemming from your vehicle’s value depreciation. UK vehicle value depreciation averages suggest that new vehicles lose around 60% of their value after the first three years. And without GAP insurance, this is a loss that you will just have to bear in the case that your vehicle is written off. 

Here’s how GAP insurance works. In the event that your vehicle is declared a total loss due to an accident, theft, or other incident, this is covered by your main insurance policy. When this happens, your main insurance will usually cover your vehicle at its current market value at the time you are making the claim. 

The problem is that this value can be a lot less than you paid for your vehicle only a few years ago, or it can be lower than the amount you still owe on the loan or lease you purchased the vehicle with. This is where GAP insurance UK comes in. GAP insurance is designed to cover the ‘gap’ between what your insurer will pay out when your vehicle is written off, and what you paid or still owe on your vehicle. 

Simply put, if you bought a car three years ago and its market value has already dropped by 60%, your insurer will only cover 40% of the original cost to you if it is considered a total loss. When you are covered by GAP insurance, it will step in to cover the remaining 60% value gap, so you don’t have to suffer this as a loss.  

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Is GAP insurance worth it for me?

GAPinsurance exists to protect the ‘gap’ between the value that your insurer will pay out when your vehicle is written off, and the amount you paid for or still owe on the vehicle. Your vehicle can be written off because of theft, accidents that lead to extensive damage, or when repair costs are so high they exceed the market value of your vehicle. 

This means that knowing the size of the gap that you will be insuring can give you a good idea of whether GAP insurance is worth it for you. GAP insurance can be particularly useful under the following circumstances as these will increase the likelihood of larger value gaps:

• If you are leasing or financing your vehicle: In this case, if your vehicle’s value depreciates faster than your loan or lease balance decreases then GAP insurance can cover anything you still owe on your vehicle when it is written off. 
• If your vehicle has a particularly high depreciation rate: This could be the case particularly if you own a luxury or specialist vehicle.
• If you have made a smaller down payment on your vehicle: In this situation your initial equity in your vehicle is lower, so it’s more likely that your loan balance will be higher than your vehicle’s value.
• If you have long loan terms: Again, here your vehicle could devalue faster than your loan balance decreases so you could still be left paying off a vehicle you no longer have. 
• If you’re dealing with rolling negative equity: This is where you exchange a vehicle with an outstanding loan balance and roll the remaining balance into a new loan for a new one. This usually leads to a higher gap. 

If you are buying GAP insurance, it’s good to know the different types, as each one is tailored to different needs. The type you need will usually be clear from your circumstances, for example, how you bought your vehicle, or how long ago you bought it. 

Heard enough? Get a GAP insurance quote today at Quotezone.co.uk.

Understanding the different types of GAP insurance

Finance GAP insurance

This could suit you if you bought your vehicle on finance like hire purchase or personal contract purchase (PCP). This type of GAP insurance will cover the gap between your main insurance payout and what you still owe to the finance company. This cover will mean you are not left with a large outstanding debt hanging over your head, and you will not continue to pay the finance company for a vehicle you no longer have.

An example of finance GAP insurance cover:

1. You buy a car on finance for £15’000
2. Your car is written off 
3. Your main insurer covers your vehicle for £10’000 
4. You still owe £5’000 on your finance agreement
5. GAP insurance will cover this £5’000

Return to invoice (RTI) GAP insurance 

This type of GAP insurance will be useful if you have a vehicle that you know has a high value depreciation rate. This is usually the case with luxury cars or new and specialised vehicles. It will cover the gap between what your insurance will pay out if your vehicle is written off and what you originally paid for or owe on it. 

Some insurers will ask for an invoice from a registered dealership to confirm the exact invoice price, which might exclude you if you have bought your vehicle privately. However, although this type of cover is usually associated with new vehicles bought from registered dealerships, some GAP insurers will also provide RTI insurance for second hand vehicles and those bought privately, so it is worth comparing GAP insurance quotes from multiple providers to find one that works for you. 

With this type of GAP insurance, it is almost always the case that it must be bought within a certain time frame after you have purchased your vehicle. This time varies across different insurers and policies, but it can range from a few weeks to a few months after the initial purchase. 

An example of return to invoice GAP insurance cover:

1. You buy a car from a dealership for £25’000
2. Your car is written off 
3. Your car’s value has depreciated by 40% since you bought it
4. So your main insurer pays out £15’000 
5. RTI GAP insurance will pay out  £10’000 so you are covered to the value of your original invoice

Agreed value (AV) GAP insurance

This is also known as return to value or RTV insurance. This will cover the gap between what your main insurer will pay out when your vehicle is a complete loss and a value that you have agreed on with your insurer when taking out your AV GAP insurance policy. 

The value you agree on will typically be guided by the market value of your vehicle at the time you buy this GAP insurance. This means, unlike return to invoice insurance you will usually be able to take out this this kind of policy at any time after buying your vehicle. So if you have missed the cut off for RTI insurance this could be another option for you to consider.  

It can also be worth getting for people who cannot get RTI insurance because they cannot provide an invoice from a registered dealership, as these are not needed here. So AV insurance can also insure second hand cars or vehicles bought privately. 

An example of agreed value GAP insurance cover:

1. You buy a second hand car from a private dealer for £12’000
2. A year later you take out AV insurance to the value of £10’000
3. Your car is written off 
4. Your main insurer pays out £8’000
5. AV GAP insurance will pay out an additional £2’000 so you are covered to the agreed value on your policy

Vehicle replacement GAP insurance 

Vehicle replacement GAP insurance (VRI) covers you for the gap between your main insurer’s total loss payment and the cost of buying a replacement vehicle. Specifics of this cost will vary across different policies but are usually based on either what you paid for your vehicle, or the cost of replacing it with a new one of the same model, age and spec. 

And this includes cases where the price is more than you originally paid for the vehicle you have just written off. So if you were able to get a particularly good deal on your original vehicle, you could get a replacement one that has a higher value than the original. 

However, as this is the most comprehensive type of GAP cover, it can also be the most expensive. There can be restrictions on how long after you have purchased your vehicle you will be able to buy it. Plus, like RTI insurance, it is common that insurers will only offer this cover to you if you have bought your vehicle from a registered dealership. 

An example of vehicle replacement GAP insurance cover:

1. You buy a car from a dealership for £22’000
2. Your car is written off 
3. The cost of replacing your car with its equivalent is now £23’000
4. Your main insurer pays out £15’000
5. Vehicle replacement GAP insurance pays the £8’000 gap so you can replace your car

Negative equity GAP insurance 

Negative equity is where an asset like your car is worth less than the outstanding balance on the loan or financing used the purchase that asset. This can happen with vehicles if you purchase them with rolling negative equity. This is where you trade in a vehicle with an outstanding loan balance and roll the remaining balance into a new loan for a new vehicle. 

This usually leads to a higher gap between your vehicle’s value and what you owe for the vehicle. GAP insurance can save you from further loss by covering what you will still owe to your finance provider in the event that your vehicle is written off. 

An example of negative equity GAP insurance cover:

1. You buy a car on finance with rolling negative equity for £25’000
2. Your car is written off 
3. Your main insurer covers your vehicle for its market value of £20’000 
4. You still owe £5’000 on your finance agreement
5. Negative equity insurance will cover this £5’000 gap 

Lease GAP insurance

Lease or contract hire GAP insurance (CHG) kicks in to cover any outstanding payments on your lease agreement as well as the loss from your vehicle’s value depreciation. This means that if your vehicle is written off and your insurer only covers a fraction of the value owed on your vehicle lease, you do not have to keep paying out of pocket for a vehicle you no longer have. 

An example of lease GAP insurance cover:

1. You lease a car for £20’000
2. Your car is written off
3. Your main insurer covers your vehicle for £15’000 
4. You still owe £5’000 on your lease agreement
5. Lease GAP insurance will cover this £5’000

What types of GAP insurance do I need?

Ultimately the type of GAP insurance that will work for your vehicle and circumstances will depend on a number of factors. It’s important to consider these if you are looking for a GAP insurance policy as these can all affect the ‘gap’ that you are insuring. 

You will need to consider:

• The value of your vehicle
• How you bought your vehicle
• How long it has been since you purchased your vehicle
• Whether you bought a new or used vehicle
• If you bought it from a registered dealership or privately 
• What you want your GAP insurance to cover
• The amount you owe on your loan or lease
• Your vehicle’s value depreciation rate – you can get an idea of this using a car value calculator

With the types of GAP insurance explained to you, it will be easier to make an informed decision. But you can also speak with UK GAP insurers today by entering a few simple details at Quotezone.co.uk now. We are regulated by the FCA and do not have any investments in insurance brokers and are not owned by any insurance companies so you know you will get an unbiased quote on GAP insurance that suits your needs and budget. 

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This article is intended as generic information only and is not intended to apply to anybody’s specific circumstances, demands or needs. The views expressed are not intended to provide any financial service or to give any recommendation or advice. Products and services are only mentioned for illustrative rather than promotional purposes