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GAP insurance – what is it and do you need it?

GAP insurance – what is it and do you need it?

GAP insurance. It's one of those things that is the subject of many a mixed opinion. On paper it sounds too good to be true. It's a policy that pays the difference (or gap, if you will) between the market value of your car at the time of the crash, and the value of it when it was new.

So not only do you get a pay-out to replace your car, you get a bonus pay-out to buy a brand new one, not one the same as your, say, three year old car.

Then there is the school of thought based around GAP being one of those things, along with paint protection, that a pushy salesman will try and force you to have. Normally for an eye-watering fee.

And just to add to the confusion, both statements are correct. But in the case of the latter, there is a way around the dealer price. But we'll get to that in a moment. Before we do, let's look at GAP insurance basics.

What is GAP insurance?

You buy your car and then, after let's say two years of ownership, some berk writes it off. In that situation, you would call your insurers, they would have a look at the claim, and then they would send you a cheque, so you can go out and replace your car.

But here's the thing, your insurance vows to ensure you're no worse off than you were before. By that, we mean it pays out the market value of the car at the time, not the amount you paid for it.

This is where GAP comes in. A GAP policy would pay you the difference between the market value of the car and what you paid for it when it was new. In numbers that means:

                        Bought the car for: £10,000
                        Value when written off: £7500
                        Insurer pays out: £7500

Without a GAP policy, £7500 would be your lot. But with one, you'd get another cheque for £2500. So you can go out and buy a brand new car, rather than another two year old one.

That sounds brilliant, what's the catch?

Honestly, there isn't one as such. You just have to make sure you meet the criteria. Most policies will only cover cars up to three years old.

Most policies will insist that your car insurance policy is fully comprehensive. They will insist that your car is maintained and in good condition, and of course, it doesn't pay out if you're at fault.

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How much is GAP insurance?

Well, here's the thing. The salesman with the pointy shoes and the slick haircut will try and tell you it's £400 or something equally daft. Then he'll offer to build it into your finance and that way it doesn't seem so much. Ignore him. There is no obligation to buy your GAP policy from the car's supplying dealer.

We had a look online and found policies for as little as £60, though depending on the make and model, that can and will go up. But even so, it rarely reaches the giddy prices quoted in the dealership. They want you to buy it there because it looks good on their commission sheets, that's all.

So should I buy a GAP policy?

If you're happy to do a bit of digging online to get one yourself, absolutely. Having your car written off is an awful experience, but it's one softened considerably by a GAP policy, as you can go out and replace your bent car with a brand new one.

Before you do though, check what you have already. A lot of insurance policies will, if your car is written off at less than a year old, offer an old for new replacement. So, in a way, you're covered.

Also, as we said, you can only have a GAP policy on cars up to a certain age, though this can vary from supplier to supplier.

And of course, make sure you read all the small print and the terms and conditions. But other than that, if you're driving a new or newish car, a GAP policy could be a smart move should the worst happen.