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Gap Insurance | Your complete guide

 

Updated 26th January 2019

 

Gap Insurance protects you against financial loss. This can happen if your vehicle is stolen, or declared a 'write off', by a motor insurer. It can top up your motor insurers settlement. This can be back to the original price paid for your vehicle, its replacement cost or to clear a finance agreement. 

 

Guranteed Asset Protection Guide 2019

In this guide

 

Here we explain how Gap Insurance works, how it can benefit you, how to get the best policy and the best value for money.

 

What is GAP Insurance?

How cover works

Types of Gap Insurance

Finance Shortfall cover

Return to Invoice

Vehicle Replacement

Contract Hire & Lease Hire

Agreed Value / Return to Value

Should you get cover?

How to buy a policy

How to make a claim

How are you protected?

FAQ's

What is GAP Insurance?

 

Simply put, Gap Insurance (or Guaranteed Asset Protection) can provide added financial protection. This comes into play if your vehicle is written off by your motor insurer following

 

  • accident (fault or non-fault)

  • theft (recovered or not)

  • flood

  • fire

 

The key is that the motor insurer does not repair, or replace your vehicle. Instead they pay you the current market value of the vehicle to you, at that time.

 

Why it exists

 

Guaranteed Asset Protection, and the reason why people use it, comes down to a few factors:

 

  • The vehicle you buy will, in almost every case, lose value over the years of your ownership.

 

  • The vehicle may have an accident, suffer a fire, a flood or get stolen. If this happens, your motor insurer can 'write off' the vehicle as an uneconomic total loss. If this happens then you can claim on a 'fully comprehensive' motor insurance policy for that loss. But, this claim alone may only pay the market value of the vehicle at that time.

 

  • A 'market value' settlement may not be enough for you to buy the same standard of vehicle as when you first bought it. It may also not be enough to clear the financial liability on a lease or HP agreement left on it.

 

This is where GAP can step in.

 

The average new vehicle can lose up to 60% of it's value within the first three years of ownership in the UK. - Source The AA

 

How it works

 

Let us say you have paid £20,000 for your brand new car. Three years later your car is stolen, and declared a total loss (aka write off) by your car insurer. What do they cover you for? Only the market value of the vehicle at that point. If it has lost 60% in that time, you would only receive £8,000 as a 'market value' settlement.

 

What would you do in this position? Your vehicle, that you have owned from new and cost you £20,000 has now gone. All you may have is £8,000 to replace it.

 

What if you also have car finance outstanding on the vehicle?

 

GAP can provide the answer.

 

Key requirements for it to work

 

  • You must have a fully comprehensive motor insurance policy in place for the vehicle

  • your motor insurer must write off the vehicle as an uneconomic repair or total loss

  • your motor insurer MUST NOT repair or replace the vehicle

  • your motor insurer MUST pay out the market value of the vehicle at time of the claim

 

New report highlights the lack of understanding with comprehensive motor insurance cover and the benefits of GAP Insurance


 

When you can buy cover - time limits

 

Your buy a policy during the process of getting a new (brand new, or new to you) vehicle. It adds extra protection to that offered by your comprehensive motor insurance cover.

 

There are time limits, from the time you get the vehicle, that you can buy gap cover. This varies from provider to provider, anywhere from a 30 day to a 180 day time frame. Outside these periods the choices for cover are more restricted.Gap Insurance guide

 

Types of cover

 

There are many types of products in the market. They offer different ways to protect you.

 

Finance Shortfall cover

 

Suitable for

  • Purchases from a VAT registered motor dealer

  • Purchases on a Hire Purchase or PCP (Personal Contract Purchase) agreement.

 

Not suitable for

  • Purchases via a personal or bank loan

  • Purchases from a private sale, auction, eBay etc

 

This is the original type of Asset Protection and one that many still recognise today. Yet, this type of cover can be quite limiting.

 

Finance Shortfall Gap is for 'linked' vehicle loans. It covers the difference between the motor insurers settlement and the finance settlement.

 

This type of cover is for finance agreements linked to the vehicle. Personal and bank loans may not be against the vehicle, they are against the borrower. HP or PCP agreements need to have the finance paid off if the vehicle is a write off. This is not the case with personal or bank loans.

 

Return to Invoice

 

Suitable for

  • Purchases from a VAT registered motor dealer

  • Vehicle purchased outright (cash), HP, PCP or bank loan

 

Not suitable for

  • Vehicles bought by private sale, auction, eBay etc

 

Return to Invoice is often the type of cover a motor dealer will offer you. It covers from the motor insurers 'write off' value to the original sale price paid, ie the invoice price.

 

Often the Return to Invoice (or Back to Invoice) can be 'combined'. This means it is also offering finance shortfall cover. This means if the finance amount is higher than the invoice price then the finance gets paid instead.

 

Vehicle Replacement

 

Suitable for

  • Purchases from a VAT registered motor dealer

  • Vehicle purchased outright (cash), HP, PCP or bank loan

 

Not suitable for

  • Vehicles bought by private sale, auction, eBay etc

 

Vehicle Replacement Insurance is considered the highest level of policy available. It can cover you between the motor insurers settlement and the cost of the a replacement vehicle. The replacement vehicle would be the same as yours was when you first bought it.

 

For example, if you bought a brand new vehicle then it is the cost of a brand new vehicle at the time you claim. If the it was 2 years old with 20,000 miles then the equivalent is a 2 year old, 20,000 miles example at the time you claim.

 

So why is this different than Return to Invoice?

 

Because the cost of the replacement vehicle may have gone up from the amount you paid originally.

 

This can happen where you got a discount on the original sale. We all want the best deal, right? It can also happen when the manufacturer upgrades the model and the list price increases.

 

Note of caution with Vehicle Replacement Insurance

 

Car prices can go down, what does your VRI do?

 

You would expect the cost of the 'equivalent' vehicle to be higher in the future, and it is in most cases. But you can buy a vehicle now that may actually be cheaper to replace in the future. This could be when you buy a new model on the market and no discounts exist.

 

This means you will get less than you originally paid for the vehicle with a VRI claim.

 

Unless it has Invoice cover included as well.

 

Many Vehicle Replacement products now combined 'Invoice' cover also. This means that your get the higher of either

  • the original invoice price you paid OR

  • the cost of the replacement vehicle at the time of claim

This means that IF the replacement cost has fallen below the price you first paid then it reverts to paying the original sale price.

 

A VRI Gap that does this is Total Loss Gap Combined Invoice and Replacement Gap (shameless plug!)

 

Best of all worlds!

 

Contract Hire & Lease Hire cover

 

Suitable for

  • Vehicles secured on a lease with no option to own

  • vehicles secured via a leasing broker or motor dealer

 

Not suitable for

  • vehicles purchased by cash,HP, PCP, bank or personal loan

  • vehicles purchased privately, via auction, eBay etc

 

If you have taken a vehicle on a lease or contract hire agreement this is the best form of protection for you. The key is that you have no option to own the vehicle written into the lease. If so, then Lease/Contract Hire Gap is the correct cover.

 

As you cannot own the vehicle you can't protect either the invoice price or the replacement cost. You don't need to either.

 

Instead, this form of cover will protect any shortfall owing to the lease company in the event of a total loss. If the vehicle is a write off, your motor insurance will pay the value of the vehicle at that time. The lease company will then ask you to settle the lease in full.

 

This settlement can include:

  • the outstanding rentals on the lease, some or all.

  • the residual value of the vehicle.

 

The motor insurers settlement may not cover the entire lease settlement. Lease/Contract Hire Gap aims to pay any shortfall.

 

Deposit Protection option with Lease/Contract Hire Gap 

 

Often a lease is in the form of an 'advanced' rental, followed by monthly rentals for a fixed term. The 'advanced' rental is like a deposit, and can be 3,6 or 9 monthly rentals combined as a first payment.

 

With 'deposit protection' you can protect your initial advanced or deposit rental. This means you can claim back your 'deposit' rental and use this as a deposit on your next vehicle.

 

Agreed Value / Return to Value

 

Suitable for

  • vehicles owned for more than 180 days (or the max period to buy VRI or RTI)

  • vehicles purchased privately

 

Not suitable for

  • vehicles on a lease/contract hire agreement

'Agreed Value', or 'Return to Value' as it can also be know, tends to be a fall back solution. If you owned your vehicle too long to qualify for RTI or VRI Gap then it may be worth considering.

 

Agreed Value covers from the motor insurers payment, to the vehicle value when you buy the AV cover. So the value covered is set at the time of buying Agreed Value, not the vehicle sale.

 

The Agreed Value is set by referencing one of the motor industry guides, such as Glass Guide. Check the Agreed Value product you are looking at to see which guide they would use.


 

Typical Features of cover

 

  • Excess Contribution - Pays towards the excess taken by your motor insurer from a ‘write off’ claim. Gap Insurance often contributes towards this deduction, if you claim. This may be between £250 and £750 depending on the product provider.

 

  • Claim Limit - you may have to select an upper claim limit for your policy. This is the most you will ever be able to claim from your Gap policy. You have to make sure it covers you for the type of policy and period you select. Some products carry an 'unlimited' claim limit so no judgement needed.

 

  • Combined cover - this means at least two types of cover rolled into one. Often this is Finance Shortfall and Return to Invoice as a 'Combined RTI'. This means you are covered to the higher of the finance settlement or the original price paid.

 

  • Accessories cover - Normally all factory fitted extras are included with policy terms. Some products also cover dealer fitted accessories, often capped at £1500 total value. If you have bought dealer accessories check if they are excluded. Extras like paint and fabric protection costs can be covered, but not by all products.

 

  • Transfer of policy - If you change the vehicle mid term then you can often transfer cover to your new vehicle. If the new vehicle is more expensive (i.e. a higher risk) then you might need a new policy.

 

  • Cancellation & Refund - If you get rid of the vehicle before the policy ends then you can cancel. Any refund amount calculation will be in the policy terms. If you claim on the policy then you cannot claim a refund.

 

Typical exclusions

 

  • Motor Insurer 'Indemnity' - you must have fully comprehensive motor insurance in place. If your motor insurance lapses, is only third party or does not cover you for the claim then Gap is not valid.

BE CAREFUL not to allow someone to borrow your car using their own insurance. Even though they may be 'fully comp' on their own car they may only be third party on yours!

 

  • Commercial use - if you are using a vehicle for taxi, courier, chauffeur, driving school then check t's & c's. Most standard Gap cover will exclude these uses. Specialist alternatives do exist.

 

  • Negative equity cover - we need to be clear what we mean by negative equity here. If you owe more on a finance agreement than your motor insurer pays then that is normally covered. But if you had a part-ex with finance owing and this can be added to the finance agreement on the new car. This 'negative equity' is not covered on most policies. Specialist add-on options may be available.

 

Should you get cover?

 

There are a few aspects to consider when looking at cover. These will help you decide whether a policy is worth it for you, or not.

 

  • Vehicles lose value. If the motor insurer 'writes off' the vehicle as a total loss then you may only get the market value at that time.

  • If you have finance linked to the vehicle (on a lease, HP or PCP) then the motor insurers settlement may not clear it.

  • Do you want that same standard of vehicle again? e.g. if you bought the vehicle brand new do you want another new one?

  • On average a vehicle is written off every 90 seconds in the UK (according to Churchill).

  • 1 in 83 drivers have their vehicle written off each year in the UK.

  • 89,000 vehicles a year are stolen in the UK (according to the Daily Express).

 

There can be different considerations if the vehicle you are buying is new or used.

 

Why cover for new cars?   new cars 19 plate UK

 

There is an argument that it is more useful for new vehicles. This is because new cars lose value much quicker than a used car. It is common that a new car will lose at least 50-60% of its original price in 3 years. Whatcar? reported some new vehicles losing more than 80% in the first 3 years.

 

A depreciating value means a growing potential claim on a Gap policy if the vehicle is written off.

 

Have you got 'new for old' replacement cover on your motor insurance?

 

Some motor insurance cover provides 'new for old' cover for 1 or even 2 years on new vehicles. This means that if the vehicle is written off then the motor insurer will replace the vehicle for you.

 

This means you may not need Gap, right?

 

The issue in relying on 'new for old' comes as there can be some restrictive terms and conditions attached. The motor insurer may not allow the 'new for old' option for a number of reasons including

 

  • you are not the registered (and/or) first keeper or owner. This can be the case on a lease.

  • the vehicle is subject to a finance agreement

  • the insurer cannot replace the vehicle within a set time frame

  • there may be maximum mileage clause e.g. no more than 10,000 miles at point of claim

  • There may be a minimum percentage cost of damage (e.g. 60% of the new list price) before the insurer will consider a new replacement

 

We have even seen a motor insurer not offering a new car replacement, despite it being in the terms, as the customer did not ask for it when they claimed!

 

Any of these reasons, and more, can mean your motor insurer only paying the market value in the claim. If you have no Gap cover you have no option to claim any shortfall.

 

You must be sure that you are happy with the insurers terms if you are to reply on them.

 

But if you are happy with your 'new for old' cover then you don't need Gap in that time, do you?

 

That may be the case but if you do want cover for years 2,3,4 and perhaps 5 then what do you do? There is a temptation to leave taking out a policy until the end of year 1 but there is an issue with that. You MUST buy a Gap policy within a set time of buying the vehicle, often 180 days (about 6 months).

 

If you leave it until the first year is up then you may not be able to buy protection at all, or you may see options reduced.

 

The solution may be to find a provider who will allow you to defer your policy start date. This means you can buy the cover within 180 days of vehicle purchase, just setting the 'start date' in the future. The normal maximum start date you can set is 1 year after the vehicle is first registered new.

 

Again, a word of caution. If you are thinking of deferring the Gap Insurance start date make sure you are happy with the motor insurers terms.

 

Why cover for used cars?

 

Some of the reasons for getting Guaranteed Asset Protection on a new car are also valid when thinking about cover on a used car too. All vehicles , new or used, will lose value and this can be covered with Asset Protection. However, as we pointed out above, used cars tend to lose value at a much lower rate. It begs the question

 

Is it worth it on used cars worth it?

 

Accepting a used vehicle will lose value at a lower rate than a new one, it will still lose value. If a new vehicle at £20,000 loses 50% of its value in 3 years then that is a potential £10,000 'Gap'. If a used vehicle at £15,000 only loses 33% over 3 years then that is still a £5,000 'Gap'.

 

So any claim benefit on a used car might well be lower than against a new car.

 

That does not tell the whole story though.

 

Claims data from our insurers show that the frequency on used cars is now higher. That means the rate at which claims are made. To a customer that means the chances of you making a claim on a used car are rising.

 

Why might that be?

 

 

If you have a crash in a a new car of £20,000 value then £10,000 worth of damage may see the vehicle repaired.

 

If the very same damage was done to a used car of £12,000 value then the used car may end up being written off.

 

The salvage value of the vehicle can also be high these days. The second hand value of the parts of the vehicle can be high.

 

The cost of leaving you in a hire car whilst your vehicle is being repaired also adds to the overall claim costs.

 

Putting all these factors together you may see that motor insurers may be more inclined to write off a vehicle than ever before.

 

Of course, these factors apply to new vehicles also. But a used car, with a lower value may be more likely to trigger the insurer to write off the vehicle.

 

Depreciation vs claim rate

 

So when deciding whether to take protection on a used car you may get a lower payout than for a new car. You may also see a higher chance of making a claim also.


 

How to buy a policy

 

If you are looking at buying Gap then there are many ways you can do this.

 

Motor dealers

 

This is often where you are first introduced to 'Gap Insurance'. During the process of buying the car the dealer may offer cover along with other 'add-on' products.

 

There are some issues with buying cover from the motor dealer, including:

 

The Price - why so expensive at a dealer?

 

The average cost of Gap Insurance at motor dealers can be £300-£400. Compare that to online prices at £150-£200 then that can be quite a significant difference. Why is this?

 

  • Scale - Individual dealers may sell a small number of policies (they can only sell to their own customers). Because of this they may have to source their products through an intermediary. This could be a finance house or manufacturer, all adding to the cost.

  • Added Commission - extra commission can be paid to the sales person or finance manager. All built into the price.

  • Insurance Premium Tax - there are two rates at which you can pay tax on insurance in the UK. The standard rate of IPT is 12%. If you buy a policy from a company involved in the sale of the vehicle (ie the dealer) you pay higher rate IPT at 20%.

 

Other issues include

 

Limited range of products to offer

 

Often motor dealers can only offer the basic shortfall cover or 'mid range' RTI. Few offer full Vehicle Replacement Insurance, which can be beneficial on some deals.

 

Pushy sales tactics

 

Some consumers have seen quite 'pushy' sales tactics in dealers with 'add-on' sales in the past. The dealers are aware that you can find equal, or better products elsewhere at a cheaper price.

 

New rules came into force on 1st September 2015 from the Financial Conduct Authority. These aimed to reduce the dealers 'point of sale' advantage when selling these types of products.

 

Dealers are now not allowed to sell an additional insurance product at the same time as selling you the car.

 

The dealer must provide full product details and price. They then must allow 2 days for consumers to consider their options.

 

This break allows consumers to check prices elsewhere.


 

Motor Insurers

 

Now you may think that Gap cover and motor insurance go 'hand in hand'. In fact few of the main motor insurers offer Asset Protection Insurance at all.

 

One we have seen starting to offer cover is Admiral, through Car Care Plan. The product offering appears limited to a version of Return to Invoice or Agreed Value style.

 

Comparison websites like Go Compare, MoneySupermarket and Confused.com do offer guides. They also provide links to brokers they have agreements with.

 

Price comparison websites do not seem to offer may alternatives at the moment.

 

Brokers

 

Independent, specialist insurance brokers have been selling Gap Insurance for many years. Indeed our company, Aequitas Automotive Ltd, has sold Gap Insurance from the following brands:

 

Of course there are some other insurance brokers around who also sell these types of cover. We just think we are one of the best!

 

The advantages of buying from a broker can include:

 

Price

 

Insurance brokers can work in on a small commission/large volume basis. This means they often provide comparable cover to dealers but at much lower premiums.

 

A range of products

 

Not all vehicle purchases are the same. Having a range of products available can mean you get a tailored solution.

 

Can offer cover from more than one insurer

 

Again different insurers can offer a different feature set on each type of cover. Different costs too. A broker can often provide you with alternative quotes that can give you the best value.


 

Finance Company

 

You can find the some motor dealers do not sell cover directly. Instead one of their supporting Finance house may contact customers on their behalf. This may mean a direct telephone call to discuss options for Gap.

 

Range of product options are again an issue. Finance companies can be keen to offer the basic finance shortfall cover. It may not be the best option even with finance agreements in place.

 

Discount Codes

 

In the modern world online you often find the lure of a voucher or discount code appealing.

 

Who wouldn't want to save money or get a deal?

 

The issue with using discount codes is that you can still find equal, or better cover, at a lower price elsewhere.

 

Don't forget about policy features either. Just because one provider offers a discount make sure the policy features are what you need also. In saving a few pounds you might have cost yourself thousands in getting a lesser cover.

 

Gap Insurance Reviews

 

There are many good, industry recognised consumer reviews available. The Money Saving Expert review is often cited, as well as one of the long standing reports from Which?

 

Both of these appear to provide unbiased reviews and information (although we may not agree with everything they say!). They are both are registered with the Financial Conduct Authority.
 

How to make a claim

 

Every Gap Insurance policy will have a claims procedure set out in the terms. Following the insurers procedure is always the best route for a quick payout.

 

In general terms though you may expect the following timeline:

  1. Vehicle is in an incident (accident, theft, fire flood, etc) and you report this to your motor insurer. May be a good idea to request a finance settlement (if you have one) just in case you need it to make a claim.

  2. If you have an idea the vehicle may be declared a 'write off' call the claims team. Don't accept any motor insurers settlement before discussing with the claims team.

  3. You may need to provide paperwork to both the motor insurer and Gap claims team. This may include V5, copies of a finance agreement, copy of the motor insurance cover etc.

  4. The Gap team will process your claim following confirmation of your motor insurers settlement offer.

 

The timing of the events can differ with each provider. Some ask that you do not accept any motor insurers settlement until you have spoken to the Gap claims team. Others are more relaxed about this but may not pay the Gap claim until you show you have been paid by the motor insurer.

 

Either way your claim should not be unduly delayed. There can be some chatter about providers using claims terms to delay paying out. In reality, any insurer would be subject to scrutiny by the FCA and FOS if they pay claims slowly.

 

Best advice is to follow the claims terms laid out. If in doubt call the claims team for advice.

 

How are you protected?

 

As this type of Insurance covers you for a multiple of years there can be other things to consider. We address those here.

 

What happens if the company who sold you the policy goes bust?

 

You will buy the cover from a 'retailer'. This could be the motor dealer, the insurance broker or the finance company. If they close down then the policy is still underwritten by an insurer. They will have a full claims procedure and team in place to deal with you. The contact details will be in the policy terms.

 

In reality the 'retailer' will have little to do with a claim (certainly if it as the motor dealer who sold you the policy).

 

What happens is the insurer goes bust?

 

This is a bit more of a concern. Insurers are subject to 'solvency' requirements but they can still run into trouble. If you buy insurance in the UK then you can be covered by the Financial Services Compensation Scheme.

 

The FSCS can cover up to 90% of your claim for non-compulsory insurance (like Gap). There are some limitations for commercial customers. Check with the FSCS for limits on cover.

 

What happens if you are not happy with the outcome of a claim?

 

The policy terms and conditions will have a complaints procedure laid out in the policy terms. It is best to follow it. This may involve making a complaint to the 'retailer' if you are unhappy how you were sold the policy. If your issue was with the claim then you can complain to the insurer.

 

If you are unhappy with the outcome of the complaint then you can go to the Financial Ombudsman Service.

 

FAQ's

 

Is Gap Insurance optional or compulsory? Gap Insurance is a completely optional product. You do not have to buy it if you do not want it.

 

Will Gap Insurance cover a blown engine or gearbox? No. This type of insurance can only be claimed on if the motor insurer writes off the vehicle. This can be after an accident, fire, flood or theft. A blown engine is something you would look to get a warranty direct to cover.

 

Will Gap Insurance cover an incident that has already happened. No. You can only claim for incidents that happen after the policy starts. You cannot have a crash, then buy cover and then make a successful claim.

 

Or you could not have a crash, buy a policy before the motor insurer has officially written the car off, then expect to make a claim if they do.

 

Who is covered by a policy? Normally the main policy holder and named drivers on the motor insurance would be covered. Drivers must be fully comprehensively insured.

 

Does it cover theft with keys? Every Gap policy we have ever seen would cover you if the vehicle was stolen following the theft of keys. However, it would be reliant on the motor insurer also covering you. If the keys were stolen because you were negligent (e.g. if you leave the keys in the ignition and leave the vehicle) then the motor insurer will not cover you. Neither will the Gap cover.

 

If someone breaks into your house, steals the keys and then the car then your motor insurer should cover that. If that is the case then your Gap cover should be fine too.

 

What type of vehicles can be covered? Policies will differ but generally cars and light commercials (subject to use) are fine.

 

Specialist products do exist for motorbikes, motorhomes, heavy goods vehicles and farm vehicles.

 

Which vehicle uses can be covered? Standard products cover vehicles used for SD&P and to and from a place of work.

 

Commercial travelling may be excluded, as would vehicles used as a day rental/hire car.

 

Specialist cover exists for taxis, courier, chauffeur and driving school use.

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