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What is Gap Insurance?

 

You may or may not have heard of this form of insurance, yet it has been around in the UK for many years.

It first started in America and in its simplest form was a form of finance gap insurance designed to cover lease agreements on vehicles.

Thankfully today the British car buyer has a much better understanding of what a Gap Insurance policy is and it is fair to say there is a much larger range of cover available too.



Why should you consider buying Gap Insurance?
 

Your motor dealer may have told you about GAP - Guaranteed Asset Protection, but did you really understand it and which level of gap insurance is the best gap insurance for you to buy?


 

Gap Insurance can protect you against financial loss when your car is written off by your motor insurer following a fire, accident, flood, theft etc.

 

If you do not have a gap insurance policy, then if your vehicle is written off as a total loss by your motor insurer the only settlement you will receive is what ever your own motor insurance company offer.

You could be faced with two financial concerns:

  1. You may have a finance agreement on the vehicle and your motor insurers settlement may not cover all you require.
  2. You have to replace the vehicle. Your motor insurers settlement may not provide you with enough cash for you to replace the vehicle.

In either case, you may need to dip into your own pocket to add to the motor insurers settlement. If this is a problem for you then Gap Insurance could be the answer.

 

How buying Gap Insurance can help

 

Depending upon what is important to you and which level of Gap Insurance you choose to buy, your gap protection can

  • clear outstanding finance,
  • protect the invoice price you paid
  • or even protect the replacement cost of another vehicle the same age mileage and specification as yours was on the first day you drove it home. 

 

An example of how Gap Insurance can work

How does Gap Insurance work - GapInsurance123

 

The Purchase

Let's say you purchased a New Toyota Prius Plug-in Hybrid 1.8 VVTi (120bhp) Business Edition E CVT in March 2020. This price included factory fitted parking sensors.

You paid £31,344.

 

The Incident  

 

Now let's fast forward to today (August 2021) 

The car is stolen and your own insurance company declare it written off.

They offer you a 'market value' settlement of £21,250*. The market value is the amount you would need to spend to get the same age, specification, mileage

*According to Glass's Guide (August 2021) the vehicle value is £18,790 - £21,250. Parkers Guide (August 2021) value the car at £18,950 - £19,690.

That is a deprecation of £10,094 in 17 months.

 

 

The Problem

 

  • You only have your motor insurers settlement to use.
  • You may have a finance agreement to settle, and the motor insurers settlement may not be enough to do this.
  • You also have to replace the vehicle.

 

This means you may have to top up your motor insurers settlement with your own funds or additional financing to pay any shortfall on the finance settlement and pay for a replacement vehicle.

 

The Solution

 

Gap Insurance can help cover financial settlement shortfalls and boost your finances for a replacement.

  1. The original invoice price you paid (£31,344)
  2. The outstanding finance settlement (if there is one)
  1. The outstanding finance settlement (if there is one)
  2. The original invoice price you paid (£31,344)
  3. The replacement cost of another car was the same age, mileage and specification as yours was on the first day you drove it home. If that model was no longer available settlement would be based on the superseding model. (In this case £33,569* - taken from the manufacturers' current RRP plus factory fitted parking sensors August 2021)

*Please note the replacement cost would be calculated as what it would cost at the time of the claim. This would include any discounts available. As this is for illustration purposes we have used the manufacturers' RRP for this example. If discounts are available at the time of claim, the replacement cost may be less than the manufacturers' RRP.

 

The Outcome

 

If you would have taken Combined Return to Invoice Gap then your Gap Insurance settlement would be £10,094. This is the difference between the motor insurers settlement and the original invoice price you paid for the vehicle.

If you had taken Combined Vehicle Replacement Gap then your Gap Insurance settlement would be £12,319. This is the difference between the motor insurers settlement and the cost of the equivalent replacement vehicle. In this case that would be a brand new Toyota Prius, of equivalent specification as your vehicle was when you bought it.

.

Which level of Gap Insurance cover is best?

Well, that is up to you, based on what is important to you and your circumstances.

In either case, the Gap Insurance settlements will be:

  • paid as a cash settlement (we do not supply a replacement car) with any finance paid first, the remainder coming to you.
  • paid as quickly as possible, with our aim to settle within 15 days of receipt of the necessary paperwork.