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Whether you are purchasing, financing or leasing a vehicle, one term you're likely to encounter is GAP Insurance. GAP Insurance can provide valuable protection if your car is in an accident, fire, theft or flood and is written off by your motor insurer.
You may be forgiven for thinking there is only one type of GAP protection or that you can only buy it in one place.
Neither statement is true.
Here we explain the differences you may encounter if you compare GAP Insurance options from your motor dealer and independent online providers.
GAP Insurance, or Guaranteed Asset Protection insurance, is a type of protection that effectively can run alongside your fully comprehensive car insurance.
It's designed to cover what your car insurance does not, depreciation. If your car is written off, your motor insurer may only pay you the current market value for the vehicle at the time of loss. Due to the natural depreciation in the vehicle's value, this market value could be far less than when you first took the keys for the car.
A GAP claim can help top up your motor insurers' settlement by covering some part of the vehicle depreciation.
There are different types of GAP Insurance. Some are designed for lease agreements, some for hire purchase, PCP finance or even where you buy the car outright.
You can also buy GAP Insurance from different providers. These fall into two distinct areas, the supplying motor dealer or independent online providers, like GAPInsurance123.
This article explains the differences between the two routes you can take for GAP cover.
When buying a new car, the dealership might offer you GAP protection as part of the sales process.
In days gone by, GAP Insurance was often added to your finance agreement. However, with new rules brought in by the FCA in recent years, this practice should only occur if you specifically ask for it to be done.
One clear advantage of purchasing GAP Insurance from your dealer is convenience. You can sign any paperwork at the dealership, where you pick up your car.
However, buying cover from the dealer also has some potential downsides.
Traditionally the range of GAP Insurance products available from a motor dealer is relatively narrow. Return to Invoice GAP Insurance is offered with new and used vehicle sales, whereas if you take the vehicle on a contract hire style lease, then a basic Lease GAP Insurance may be provided.
However, Return to Invoice GAP offers good cover in many situations. RTI GAP can be used in cash buys and hire purchase style agreements.
You may miss any Vehicle Replacement GAP Insurance offered in a motor dealer environment. This is best suited to a sale of a brand-new car where you may expect the cost of a replacement vehicle to go up.
For example, let's say you buy a new car initially for, say, £30,000 in 2023. Two years later, the vehicle is stolen and is now worth £18,000, which the motor insurer pays out in settlement as the market value. The cost of the equivalent brand-new replacement is now £34,000.
If you had taken Return to Invoice GAP through the dealer, the most you can be covered back to is the £30,000 shown on the original invoice price you first paid.
If you had taken a Vehicle Replacement GAP product in the same situation, you could cover the full £34,000 replacement cost, so an additional £4,000 on top of a Return to Invoice settlement.
The most significant difference you will notice when you compare GAP Insurance from the motor dealer to the premiums you find for GAP Insurance online is THE PRICE.
The GAP Insurance cost at motor dealers is generally far higher when compared to the equivalent products found at online brokers.
There are a few reasons.
Insurance Premium Tax - Buying GAP cover from your motor dealer is subject to the higher rate of Insurance Premium Tax (IPT), which is currently 20%. When you buy GAP cover from an independent source unconnected with the vehicle sale, like an online broker, IPT is charged a standard rate of 12%.
Business model - A motor dealer sells GAP products as a secondary transaction after the sale of the motor vehicle. This is called an 'add-on' sale. This means the motor dealer is restricted to only being able to provide GAP cover to people who buy a car from them.
This business model may provide far less business to an insurer. This may mean they cannot get such a good supply deal through an insurer, or in some cases, they have to use a distributor like a finance company, their dealer group or the manufacturer. This can all add up to increase costs.
The process of buying GAP protection at a motor dealer has changed in the last few years. This came from a review of the sale of the product undertaken by the FCA in 2015. Here is the basis of how it works.
Before a GAP Insurance policy is sold, a motor dealer must provide the following details:
The GAP Insurance premium price must be shown apart from other costs. For example, it cannot be rolled into a total vehicle price or added to the finance agreement.
The important benefits and exclusions for the GAP cover. This makes it easier for you to compare products in the market.
The fact that you can buy GAP Insurance coverage from other providers. These not necessarily be connected to the vehicle sale or finance.
How long your policy will last. These usually are in whole year periods.
Let you know that GAP Insurance is not compulsory.
Let you know when you can finalise the GAP policy with the dealer, should you wish.
The date that all this information has been given to you.
The new FCA rules now state that the motor dealer (or a connected company to the vehicle sale, like the finance company) must allow four days between providing the information to the customer and finalising the GAP contract with the customer. The only exception is if the customer contacts the dealer to ask to set up the GAP cover.
The rules must allow at least two clear days, so this may look something like this:
Day One: Customer receives all information regarding the GAP coverage.
Day Two: First full day
Day Three: Second full day
Day Four: The dealer can complete the GAP Insurance sale with the customer.
If your motor dealer does not adhere to these rules, you might want to ask them why. These rules ensure you have time to compare the dealer product with the market and decide whether GAP Insurance is right for you.
If you check online for alternative cover, you will see many GAP Insurance providers are available. This provides a much more extensive choice than at the motor dealer showroom.
The following key difference is the availability of different types of GAP Insurance products. The standard Return to Invoice and Lease/Contract Hire GAP products will be offered. However, you may also find options for:
Vehicle Replacement GAP Insurance is the most comprehensive style of Guaranteed Asset Protection (where 'GAP' comes from). This is particularly the case with new cars.
Finance GAP Insurance - the most basic type of GAP protection but may be suitable for some customers.
Negative Equity GAP Insurance - a rarely used style of GAP cover but designed for people who carry negative equity from one car finance agreement to another
Agreed Value GAP (also known as Return to Value GAP) - a GAP policy that covers the value of the vehicle on the day the policy is purchased rather than using the invoice price paid.
Unlike a car dealership, the key difference you will find with online GAP providers is much lower premium prices.
Often the difference between equivalent products offered at a motor dealer compared to online brokers can be between 60% and 85% cheaper online.
When comparing the two, consider the cost, coverage, and convenience. While motor dealer GAP might be more convenient, GAP bought online is often cheaper. The coverage is typically similar, but reading the fine print is always important.
No, GAP is not mandatory. However, it's highly recommended for those financing or leasing a car, as it can protect you from significant financial loss if your vehicle is stolen or written off. You may be left with a shortfall between your lease settlement and the market value settlement from your motor insurer.
You can typically cancel your GAP policy if you no longer need it. The process for cancellation and any potential refunds depends on the terms of your specific policy and the time elapsed since purchase.
If you pay off your car loan early, you may be eligible for a partial refund of your GAP Insurance premium. The specifics depend on your insurance provider and the terms of your policy.
Generally, GAP Insurance can be transferred to a different vehicle. If you get a new car, you may need to purchase a new GAP Insurance policy, as your current policy cannot be extended.
GAP Insurance typically covers only the original equipment and features of the car. Add-ons or modifications like a custom sound system or wheels are usually not covered.
GAP Insurance typically covers some or all of your motor insurance excess deduction. You will need to check your policy details to be sure. With GAPInsurance123, for example, we can cover up to the first £250 of any excess deduction.
Yes, you can buy GAP Insurance for used cars and new ones. However, it's most commonly purchased for new vehicles due to the rapid depreciation in the first few years of ownership.
To purchase GAP Insurance online, you'll typically need information about your vehicle (make, model, reg. number), details about your loan, lease, or the cash price you paid, and personal information (name, address, etc.).
Exclusions and limitations vary by policy. Standard exclusions might include equipment not installed by the manufacturer, the age or mileage of the vehicle, or vehicles that are used for certain commercial purposes. Always read your policy carefully to understand its terms.
If you need to make a GAP Insurance claim, you'll typically need to provide your insurance company with information about the incident (such as a police report for theft) and details about your standard car insurance settlement. The specifics of the process can vary by insurer. More about making a claim on a GAPInsurance123 policy can be found here.
Published 8/6/23, written by Mark Griffiths