When do you Need GAP Insurance?
If you’ve ever bought a car from a dealership, whether that’s an outright purchase or on finance, you will have likely heard of GAP insurance. However, what actually is GAP insurance and when should you be buying it?Speak to a professional about insurance today
0345 224 5329
What is GAP insurance?
Guaranteed Asset Protection (GAP) is an insurance policy that is designed to cover the gap between the amount owed on a vehicle and its actual value in the event of an accident.
If you have invested in a new vehicle, whether it’s a car or a HGV, you will want to ensure that should a total loss occur, you will not be left out of pocket if your financial exposure is more than just the market value of the vehicle.
This scenario could be as the result of the vehicle being financed when it is purchased, rather than if the vehicle was paid for in full.
What should I look for in a GAP policy?
One of the most obvious things to look for is the price. GAP prices can vary, so it’s always a good idea to shop around before you commit.
You should also be looking at what you get for your money. Most GAP policies will have a payout limit, so it is important that the level of cover you’re taking out is enough for your needs.
Finally, always check the terms and conditions of your policy to make sure it is suitable for you and ensure that the policy is underwritten by a reputable insurer.
When do you need GAP insurance?
Any policy is optional, so you will need to weigh up whether the cost is worth it for your personal needs.
However, that being said, there are some certain circumstances in which GAP insurance may be useful for you:
Total Loss Tot Up
Most GAP policies are only suitable for recently purchased vehicles; however, if you have a vehicle that is less than 10 years old, you may still want to take out a ‘tot up’ policy.
Even if you do not have any outstanding finance on the car, this option would be suitable for you, and simply put, this type of policy will uplift any payment agreed by the insurer in a total loss situation by 25%, up to a maximum amount of £10,000.
The Total Loss Tot Up policy will also pay up to £250 towards your excess if your vehicle is written off.
If you have decided to pay for your vehicle on finance, you will want to remove the risk of a financial shortfall if your vehicle is declared a total loss.
If the vehicle is written off or stolen, although your insurer will pay out the market value of the vehicle at the time of the loss, you will still have to settle the finance agreement. Due to interest, this will likely be more than the market value of the vehicle.
If you crash the car or it’s stolen, you still have to pay back the whole loan. If you had GAP cover however, it would pay off the loan, meaning that you’re not left paying back money for a car you no longer have.
When should GAP insurance be set up?
Usually, when you purchase a new vehicle, whether this is an outright purchase or through a finance option; this is the best time to set up GAP insurance.
You can usually take GAP insurance out for one to five years, which typically tends to be the length of many finance agreements. Ideally, you want your GAP insurance to last for the duration of your finance term, which is why it is a good idea to set it up when you are setting up the finance of your vehicle too.
When don’t you need GAP insurance?
There are a few circumstances in which you don’t need GAP insurance, such as:
Your vehicle is less than one year old and you have fully comprehensive insurance
Most fully comprehensive vehicle insurance policies offer ‘new car replacement’ during the first 12 months, so, if you are in this period, you may not require GAP insurance.
You’d be happy with a replacement car that’s not brand new
If you aren’t too fussed by your car devaluing, then there’s not a lot of point in purchasing GAP insurance.
If your car is stolen or written off, your car insurance will pay out for a replacement, so you’ll get a car that’s like-for-like.
How long does GAP insurance last?
As we’ve mentioned, GAP insurance usually lasts between one to five years, which will usually match the length of typical finance agreements or the length you may choose to keep the car if you bought it outright.
How long does GAP insurance last?
As we’ve mentioned, GAP insurance usually lasts between one to five years, which will usually match the length of typical finance agreements or the length you may choose to keep the car if you bought it outright.
FAQs about GAP Insurance
Do I need GAP Insurance if I purchase my car on finance?
GAP insurance will cover the difference between the market value of your vehicle and the amount of outstanding finance. Usually, the amount outstanding on finance will be more than the market value of the vehicle.
Do I need GAP Insurance for a used car?
No, you don’t need GAP insurance for a used car since the used car won’t fall in value at the same rate as a brand new car.
The gap between what you paid and what the insurer will pay you will be far smaller than if your car was brand new. However, we do have a ‘total loss tot up’ policy which will pay out 25% on top of the insurers agreed settlement, up to the value of £10,000. This policy is available for vehicles less than 10 years old.
Do I need GAP insurance if I pay cash?
If you paid in cash for your vehicle, then there is no need to get GAP insurance since it is only designed to cover you in situations where you owe more than the car is worth. You can still arrange a ‘tot up’ policy in this scenario.
Do I need GAP insurance in the first year?
Most comprehensive insurance policies will offer ‘new car replacements’ during the first years of owning your vehicle, so you’re still in this period, you may not need GAP insurance.
Do I need GAP insurance if I have full coverage?
Comprehensive full coverage insurance policies include cover for things like collisions and unexpected calamity from floods to vandalism, but it only pays out the actual market value of the car, not the price you paid for it or the amount you still owe on finance.
GAP insurance can help to cover this difference, so it may be worth looking into.
