Guaranteed Asset Protection (GAP) Insurance is a specialised coverage for those with financed vehicles in the UK, which is distinct from regular car insurance. While standard car insurance covers your vehicle for its current market value, GAP insurance steps in to cover the financial gap when your car, as the registered keeper, is declared a total loss or written off. 

This gap is the difference between what your regular insurance pays out and the original value of your vehicle, or the remaining balance on your finance agreement. This is particularly important to consider when considering how quickly vehicles can depreciate in value.

So What Are The Benefits of GAP Insurance?

Here are six reasons why people often consider GAP insurance for their cars on finance:

1. Protection Against Rapid Depreciation

 Cars (especially new ones) can lose about 60% of their value in the first three years. The GAP insurance can then cover the drop in market value and the amount left on the finance agreement. 

2. Settlement of Negative Equity 

If the car that has been stolen or written off is deemed to have a value less than the settlement amount you would have to pay the finance lender to settle your agreement, this is known as negative equity or a shortfall. When your standard car insurance payout falls short of the outstanding finance amount, GAP insurance will cover this, which prevents out-of-pocket expenses for you.

3. Assurance for Lease Agreements

When choosing GAP insurance for leased cars in the UK, it's important to cover any gap between your insurance payout and lease termination fees.

4. Suitability for Long-Term Finance Plans

Ideal for cars bought with minimal initial payments and extended finance terms, protecting against the risk of your outstanding finance being more than the car's deemed market value.

5. Future Price Increase Protection

Ensures that you can replace your vehicle without worrying about potential car price increases or lost discounts.

6. Your Peace of Mind

 It provides financial security and peace of mind, knowing you're protected against losses on a financed vehicle.

Which Type of GAP Insurances Are There For Financed Cars?

Understanding the different types of GAP insurance is key for those in the UK car finance market, to see which one is relevant for your car finance agreement. 

Return to Value (RTV) GAP Insurance

• Suitable for vehicles ‘purchased’ from a dealer more than 6 months ago.
• A good option for used car finance deals
• Applicable to cars under 10 years old and with less than 100,000 miles.
• RTV GAP Insurance covers the difference between your car insurance payout (usually the current market value of the car) and the value of your car at the time you took out the GAP insurance policy.
• This "value" is typically based on standard car valuation guides or databases at the time the policy is started, not the original purchase price.

Return to Invoice (RTI) GAP Insurance

• Designed for both new and used vehicles ‘purchased’ from a dealer within the last 6 months.
• It is important for newer financed cars because these in particular can rapidly depreciate (decrease) in value once ‘purchased.’
• Compensates the difference between your insurance payout and the original invoice price (the original price you paid for the car).

Contract Hire GAP (CHG) Insurance

• Suitable for situations where you lease a vehicle.
• This policy addresses any remaining lease payments or termination fees in the event of a vehicle write-off.
• CHG gap insurance covers the difference between your main insurer’s payout (market value of the car) and any outstanding lease commitments.

Take your time to figure out if GAP Insurance is something that makes sense for you and your car. After all, the best choice is the one that fits just right for your needs!