What does GAP insurance cover?

From total loss to shiny new car

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Everyone insures their car – and if you have comprehensive insurance, you expect that if something catastrophic happens to it, you will be fully covered. However, for standard car insurance policies ‘full cover’ means covering the value of the car at the moment that it’s written off or – in insurance speak – ‘declared a total loss’.

There are several circumstances in which this could be quite inconvenient – or even expensive.

The issue is that as soon as you take delivery of your new car, it starts to depreciate. And your normal car insurance is tied to that depreciation. Within the first year, your new car can lose up to a third of its value.

So if you need to replace your written-off car with a smart new one, your insurance won’t cover the replacement cost. It’ll only cover a second-hand vehicle. Gap insurance covers the difference between the value your insurer puts on your car and the price you paid for it.

For instance, Mr Johnstone pays cash for his new Ford Focus which costs £21,000. Unfortunately, a year later, it’s written off and his car insurer pays £15,000. He wants to buy a new car - but the price of the same make and model has risen to £23,000. GAP insurance covers the difference - £8,000 - to make up the difference and ensure he gets the new vehicle.

Gap insurance is also very handy if you have bought your car with finance. There can be quite a difference between your obligations to the finance company and the payment from your car insurer. A GAP insurance policy will cover the difference.

Ms Blackwell finances her new £12,000 car.  After a two years, she owes the finance company £10,000, but the car is only worth £7,000. In this case, GAP insurance would cover the outstanding £3,000.

There are several versions of GAP insurance. Check the details and variations as different policies will cover you for more than just the basics. Some policies allow you to ensure that all your finance obligations are covered, cover your deposit and additionally any extras that will get ensure you’re back in the position you were when you bought the car.

So GAP insurance covers everything from just making sure you don’t have to find extra cash to get out of your finance contract if your car is written off, to getting you right back on the road in shiny new wheels.


Renault - C Teddy Leung

Photo: Teddy Leung / Shutterstock.com

by James Cartwright at 23 Sep 2017, 00:00 AM