What Are The Best Gap Insurance Companies In The UK?
Do you think your fully comp car insurance would give you a total refund on what you paid for your car, if your vehicle is stolen or written off?
Cars are assets that depreciate in value - so the payout you would get from your insurer after a few years of using the car could be much less than what you paid for your wheels.
And that's where gap insurance comes in. It covers the depreciation, paying out the gap between what you paid for the car and what your main car insurer says your car is worth.
What does it cover? How much will it cost? Let us tell you everything you need to know about gap insurance.
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What is gap insurance?
Gap insurance (Guaranteed Asset Protection) is a separate policy that covers the 'gap' between what you paid for your car and what your main insurer will pay out if it's stolen or written off.
Every year, wear and tear will reduce the value of your car. Cars are what accountants call 'wasting assets' - the longer you keep one, the less it's worth.
This is worst with new cars, which can lose a third of their value the moment they're driven off the forecourt.
Good to know
The AA website says that after three years, an average new car will only be worth 40% of what its owner paid!
That's a big problem if you took out a loan to pay for the car. Suppose you have an accident and the car's written off? Insurance company payouts are calculated on the basis of what the car is worth at the time of the write-off - not the list price you paid when you bought it. Your payout could be only a third of the amount you still owe on your car loan. You've got an 'upside down' loan - the same as having negative equity on a house or flat.
Equally, you might just want to be able to buy a new car as a replacement, instead of using your payout to get a second-hand one.
How does gap insurance work?
Gap insurance covers the gap between the value of your car now and what you paid for it.
Let’s imagine you buy a BMW series 5 car at £50 000. After three years, your car is going to be worth £33,000 and that's what a fully comp car insurance policy will pay out. If your car is stolen, let’s see how gap insurance will work:
|With or without gap insurance||What your insurance pays out if your car is stolen or written off||What you need to pay off the loan / buy a new car||Shortfall|
|Fully comp only||£35,000||£50,000||-£15,000|
|With gap insurance||£35,000 fully comp + £15,000 gap|
Good to know
Gap insurance comes in several different varieties and the way the 'gap' is calculated is slightly different for each.
What are the different types of gap insurance?
Here is a list of different types of gap insurance you could find on the market:
|Gap insurance types||Explanation|
|Return to invoice||The difference between your car insurance payout and the price you paid for the car as shown on the purchase invoice.|
|Finance shortfall gap insurance||Covers the difference between the car insurance payout and your outstanding loan.|
|Vehicle replacement cover||The difference between the car insurance payout and what it would cost if you were replacing your car with a new one, same trim and manufacturer.|
You can only buy gap insurance if you already have a fully comprehensive car insurance policy. However, you can buy a gap insurance from a separate provider.
Is gap insurance worth the money?
Gap insurance is well worth the money for cars bought as new, and for relatively recent secondhand cars, especially bought on credit.
Since depreciation is higher on new cars, and gets slower on older vehicles, gap insurance is less useful once a car gets past 4 or 5 years old.
In average, gap insurance might cost £200-300 or so for three years’ cover, on top of your fully comprehensive cover.
What does gap insurance cover?
For gap insurance to come into play, the car has to be a 100% loss. Gap insurance won't cover repairs.
Your regular car insurer must have paid out on your claim if:
- Your car is stolen and cannot be recovered
- Your car is so badly damaged by fire that it can't be repaired
- Your car is written off after an accident.
What does gap insurance not cover?
Don't expect your gap insurance to pay out for:
- Renting a car to replace the stolen/written off vehicle
- A downpayment for a new car
- Extras that you added to the car after you bought it
- Replacing a failed engine
- Injury to yourself or others
- Loan unpaid due to illness, unemployment or else.
But manufacturer optional extras that were installed before the car was delivered are covered.
How much is gap insurance going to cost me?
A good ready reckoner is that it might cost you between 5 and 10% of your fully comprehensive premium.
Obviously gap insurance costs will depend on the model of car that you've bought and the size of the potential gap. But most dealerships will offer gap insurance between £200 and £300 for three years' cover.
If you compare insurance quotes online you may be able to get a better price and you can make sure you get the best gap insurance.
Admiral can cover the gap starting from £176 for 3 years, Direct Gap from £189 pounds.
When should you buy gap insurance?
There are several situations where buying a gap insurance can be useful:
- If you want to be sure you can replace your car with a new car not an older second hand vehicle.
- If you borrowed to buy the car, particularly if you made only a small down payment, gap insurance gives you peace of mind.
- If your loan is a long term (4-5 year) loan: long term loans don't shrink as quickly as the value of a new car, so that's why gap insurance is valuable.
- If you have a long term contract hire arrangement: your main insurer might not pay out enough for you to pay off the contract hire company.
- If you do a lot of mileage, which can reduce a car's value fast.
- If you've bought a car with a high depreciation rate - that is, one which loses its value very fast.
For example, a Citroen C-zero will lose 81% of value over the three first years after purchase, a MG6 74%, a Porsche Boxster 35%, and an Audi Q5 36%.
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When should you probably not purchase gap insurance?
There are some situations where you shouldn’t buy gap insurance:
- If you have an older car. Older cars don't depreciate rapidly so you don't need stand alone gap insurance.
- If your car is worth a lot more than what you borrowed to buy it - unless you care about replacing your car with a new one (see above).
- If you borrowed just to spread the cost, but you could pay off the remaining loan from cash savings, you could decide to take the risk and not take out gap insurance.
- If you have a finance agreement plan or are covered by a fully comp level of coverage, then you might already have gap insurance included.
- If you don't need to replace the car, or if you are happy to have it replaced with one that's a similar age and condition, rather than a new car.
Gap insurance is also probably not going to be worth it if you've taken out a very short term loan, over just 6 months or a year. You'll be paying that loan down very aggressively and if your fully comprehensive cover includes new car replacement, you'll never be at risk of a shortfall.
How can I pay for my gap insurance?
Like other kinds of insurance, gap insurance can be paid for in monthly instalments so that you can spread the cost over up to 36 months (different insurers may offer different options).
At the end of 36 months (3 years) you can take out a new gap insurance, as long as your car's not more than seven years old. You'll have to make a new application and the car will have to be valued again, but you'll continue to benefit from the peace of mind that gap insurance gives.
Does gap insurance work if an accident is my fault?
Gap insurance, just like fully comp policies, should work no matter who was at fault in most of the cases.
Of course, there are some exclusions for which providers won’t pay out for your claim such as if:
- You are found to be over legal limit for alcohol.
- You are driving without a valid licence.
- You were engaging in activity not included in your policy (racing, rallying).
But for any driving situation under normal circumstances, and whether the theft, fire, accident is your fault or not, the gap insurance company should cover the gap between the value of the car now (after x years of use) and the value of car when purchased.
If your main insurer reduces the payout for any specific reason, your gap insurance won't cover that.
Do I need gap insurance if I lease my car?
It is not mandatory but it's a good idea. You don't need to buy it from the leasing company, though.
Some leasing companies will ask you to take out gap insurance. Their motivation is to protect them in the case of a write-off.
However, a lease company can't insist that you buy their gap insurance. And in fact, if you buy your gap insurance from a dealership or lease company, you may end up buying an expensive policy.
Compare gap insurances online to get the cheapest gap insurance from the best gap insurance companies. And check gap insurance reviews to make sure you're dealing with a good insurance company.
Can I get gap insurance at anytime?
You don't need to sign up the same day you buy the car. Most insurers have a three month window after you buy your new car for you to get gap insurance.
A few insurers will let you get it later.
A dealer's not allowed to sell you gap insurance on the day they sell you the car. They have to wait till four days afterwards. But you can compare gap insurance from other providers, and you're free to buy it straight away from anywhere else. You'll almost certainly pay less if you buy your gap insurance online rather than going through the dealership where you bought the car.
You don't have to buy from a car dealer. In fact financial regulator, the Financial Conduct Authority, is keen for customers to shop around - and car dealers have to give you prescribed information to help you make a more informed decision.
Can I get a gap insurance on any car?
You can get gap insurance on any car that you buy that's new or recent, including recent cars bought second hand.
Initially, gap insurance lasts for three years, and you can then renew it for another three, with most insurers. (You can't get gap insurance for cars more than 7 years old; with Admiral, the limit is 5 years.)
But what if your fully comp covers you for a new car for the first twelve months? You'll be paying for gap insurance you don't need!
Some insurers will let you defer the gap insurance. You have to sign up when you buy the car, but you don't start paying the premiums till twelve months later. Be careful to check the price though - sometimes the total price per year is higher and you could get immediate coverage for a better price!