Gap insurance

Protect your car's value against depreciation

What is gap insurance?

The minute a new car drives off the garage forecourt, it can depreciate in value.

Guaranteed asset protection insurance (gap insurance), can protect against this.

It's designed to bridge the gap between the original amount you paid for your car, and the amount your insurer pays out based on its value at the time of a claim.

If your car is written off or stolen, your insurer typically offers you the current market value of the car. In many cases, this can be quite a bit lower than what you originally paid for it because of car depreciation.

Gap insurance covers the difference in price, allowing you to replace your car without having to find additional funds.

What does gap insurance cover?

The exact level of cover you get will depend on the provider but most will have qualifying criteria such as:

cars up to certain value e.g. £125,000
cars up to certain age e.g. 10 years old
cars that have fewer than 120,000 miles on the clock
cars bought from dealers and private sellers are usually also eligible for gap insurance cover

What are the different types of gap insurance?

There are several different types of policy available, depending on how old the car is, and where and when you bought it.

Depending on the provider you may find policy types that include:

1. Vehicle replacement insurance (VRI) covers the difference between the insurance payout and the cost of a similar new car (same make, model and specification).

This is typically only available for new cars that are less than three months old and with less than 1,000 recorded miles.

2. Return to invoice (RTI) pays the difference between the insurance payout and the original value of the car when you bought it.

This is usually only available for new and used cars valued up to £120,000 which have been bought from the dealer within the last three months.

3. Return to value (RTV) covers the difference between the insurance payout and the value of your car when you took out gap insurance.

To qualify, cars must typically be valued under £50,000, bought privately or from a dealership, and have been owned for more than three months.

Is gap insurance worth it?

Say you bought your car for £8,000, which depreciates at roughly 20% per year.

By year three, it’ll be worth about £4,000 at market value. That’s nearly a 50% drop overall!

If your car is stolen or written-off, then your insurer will only pay out the market valuation of £4,000. It's unlikely that this'll be enough to buy a newer equivalent model, leaving you to fork out for the £4,000 shortfall or settle for an older car.

If you’d taken out gap insurance when you’d first bought your car, you’d get £8,000 (£4,000 from your insurance policy and £4,000 from the gap cover). This would mean you’d be in a better position to get a suitable replacement without having to dip into your own pocket.