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GAP Insurance - do I need GAP insurance if I pay cash?
GAP Insurance, or Guaranteed Asset Protection insurance, is an optional coverage that protects car owners from the financial risk of a total loss in the event of an accident or theft. While many believe GAP insurance is only necessary when financing a vehicle, it can also provide valuable protection for cash purchases. Here, we will explore the benefits of GAP Insurance for cash buyers and help you determine if it's the right choice for you.
What is GAP Insurance?
GAP insurance covers the difference between the market value of your car at the time of a total loss and the amount you originally paid for it. This difference, known as the "gap," can be significant due to the depreciation of the vehicle's value over time.
The Depreciation Factor 
New cars lose a significant portion of their value within the first few years of ownership, with the most substantial drop occurring in the first year. As a result, even a relatively new vehicle can have a significantly lower market value than its purchase price. In the event of a total loss, standard comprehensive insurance will only cover the car's market value, leaving you responsible for the remaining amount.
How does GAP Insurance work for Cash buys?
Contrary to popular belief, GAP insurance policies are not exclusive to financed vehicles. Cash buyers can also benefit from this coverage, as it protects them from the financial consequences of depreciation. With GAP insurance, you can be compensated for the difference between your car's market value and its original purchase price or the future replacement cost, thus ensuring you can replace your vehicle without incurring additional expenses.
The critical difference with GAP Insurance, where there is no outstanding finance balance to be concerned with, is that the total settlement comes to you.
Assessing Your Need for GAP Insurance
When considering whether to buy GAP insurance for a cash purchase, it's essential to weigh the benefits against the cost of the policy. Here are some factors to consider:
- Depreciation: If you've purchased a new or nearly new vehicle, the depreciation rate will likely be high, making GAP insurance cover more valuable.
- Duration of ownership: If you plan to keep your car for several years, the gap between its market value and purchase price may grow, increasing the potential benefits of GAP insurance.
- Financial risk tolerance: Consider whether you can afford to cover the gap between your car's market value and purchase price in case of a total loss without additional insurance.
Types of GAP Insurance for cars purchased outright
Return to Invoice GAP Insurance
Return to Invoice GAP Insurance is a type of Guaranteed Asset Protection (GAP) insurance that aims to cover the difference between the market value of a vehicle at the time of a total loss and the original purchase price stated on the invoice. This Gap Insurance coverage benefits cars purchased outright, as it can protect the owner from the financial consequences of depreciation in the event of an accident or theft.
The owner is responsible for the total purchase price when a vehicle is purchased outright without a finance agreement. Suppose the car is involved in an accident or stolen and subsequently declared a total loss by the insurer. In that case, the comprehensive insurance policy will only cover the vehicle's current market value. Due to depreciation, this amount is often lower than the original purchase price, potentially leaving the owner with a significant financial loss.
In such a situation, Return to Invoice GAP Insurance comes into play. This coverage will bridge the gap between the market value provided by the comprehensive insurance policy and the original invoice price of the vehicle. Doing so ensures that the owner can recover the total amount they initially paid for the car, allowing them to purchase a comparable replacement vehicle without incurring additional out-of-pocket expenses.
For example, if you purchased a car for £25,000 two years later, it is involved in an accident and declared a total loss. The comprehensive insurance policy covers the current market value, which may be £15,000 due to depreciation. In this case, the Return to Invoice GAP Insurance would cover the £10,000 difference, reimbursing you the full £25,000 you initially paid for the car.
Vehicle Replacement GAP Insurance
Vehicle Replacement GAP, or VRI GAP, is a type of Guaranteed Asset Protection (GAP) insurance designed to cover the difference between the market value of a vehicle at the time of a total loss and the cost of a replacement vehicle of the same make, model, and specification. This coverage is helpful for cars purchased outright, as it can protect the owner from the financial impact of depreciation and potential price increases in the event of an accident or theft.
The owner is responsible for the entire purchase price or replacement cost when a vehicle is purchased outright without a finance agreement. Suppose the car is involved in an accident or stolen and subsequently declared a total loss by the insurer. In that case, the comprehensive insurance policy may only cover the vehicle's current value. Due to depreciation, this amount is often lower than the original purchase price, and more is needed to cover the cost of a brand-new replacement vehicle (if you originally bought a new car).
In such a situation, a Vehicle Replacement GAP policy comes into play. This coverage will bridge the gap between the market value provided by the comprehensive insurance policy and the cost of a replacement vehicle of the same make, model, and specification as the original car was on the day of purchase. Doing so ensures the owner can acquire a comparable vehicle without incurring additional out-of-pocket expenses.
What is a 'Replacement' vehicle? 
How does a Vehicle Replacement Gap policy work in terms of calculating the cost of a replacement vehicle? This all depends on the vehicle you first purchased. If it was a brand new car, where you are the first registered keeper of the vehicle, then it is the cost of the equivalent replacement vehicle, brand new, when you claim.
Vehicle Replacement Gap settlement calculation on a new car purchase
For example, you buy a brand new Kia Sportage 1.6T Phev GT Line in 2023 for £51,000, drive it for two years and cover 15,000 miles. Then in 2025, the vehicle is stolen and written off by the motor insurer as a total loss. The market value may then only be £35,000. The equivalent brand new Kia Sportage may now be £54,000
- So you paid £51,000
- Motor Insurance settles £35,000
- A new replacement car costs £54,000
- VRI GAP Insurance pays £19,000 (£54k-£35k)
With no outstanding finance balance to pay a finance company, the full settlement of £54,000 would come to you.
Vehicle Replacement Insurance for outright used car purchases
Vehicle Replacement GAP works on both new and used cars. The critical aspect to remember is that the VRI Gap covers you back to the cost of the equivalent replacement car in the event of a claim. In the case of a used car, that means the same age, mileage and specification as your car was on the day you bought it.
In the case of a used vehicle, then it is not the cost of a new replacement.
So let's say you buy a two-year-old Ford Kuga 1.5 Ecoboost with 15,000 miles for £20,000 in 2023. In 2025 the Kuga is stolen, and your car insurance settles the current replacement cost of £15,000. The equivalent replacement vehicle is now £22,000 for another two-year-old Ford Kuga Ecoboost with 15,000 miles.
- So you paid £20,000
- Motor Insurer's settlement of £15,000
- The replacement cost is £22,000
- VRI GAP Insurance pays £7,000 (£22,000-£15,000)
Agreed Value Gap Insurance
Agreed Value Gap Insurance, or Return to Value Gap insurance, is slightly different than the RTI or VRI forms of GAP Insurance. With Invoice or Replacement GAP the sale must be linked to a purchase from a VAT-registered motor dealer. With Agreed Value, the vehicle can be purchased from a private seller with some cover.
The basis of an Agreed Value GAP insurance policy is that an agreed value between the insurer and the policyholder is established at the start of cover. This will be based on a combination of factors such as make, model, age and mileage and determined by an industry-recognised valuation tool, like Glass' Guide. The agreed value is then used to calculate the payout should you need to claim during the period of cover (which can last up to 4 years).
Which type of GAP Insurance is best for cars bought outright?
This question is a challenge to answer. However, some types of GAP Insurance are utterly useless for outright purchases. Any form of finance GAP Insurance, negative equity gap insurance or lease or contract hire gap insurance is of no value when you buy a vehicle in full, with cash.
Why?
Simply you have no financial settlement to worry about. You have paid for the vehicle from your funds. So if your car is in an accident, written off or stolen, only your resources or savings have suffered a dent.
Vehicle Replacement GAP Insurance can be a better option than Return to Invoice GAP Insurance cover in the event of a claim for several reasons:
- Inflation and price increases: A Vehicle Replacement GAP Insurance policy considers potential price increases for the same make, model, and specification of the vehicle, whereas Return to Invoice GAP Insurance only covers the original invoice price. This means that if the cost of a new car has increased since the original purchase, Vehicle Replacement GAP Insurance will provide better financial protection.
- Enhanced protection from depreciation: Vehicle Replacement GAP Insurance compensates for the original vehicle's depreciation and any potential price increases for a new replacement, providing greater overall coverage compared to Return to Invoice GAP Insurance, which only covers the original invoice price.
Vehicle Replacement GAP Insurance could provide car owners who bought their vehicle using their own cash, with no finance agreement, with a higher level of financial protection in the event of a total loss. By covering the cost of a brand-new replacement vehicle rather than just the original invoice price, this insurance offers enhanced protection against depreciation and potential price increases.
Buying GAP insurance can provide valuable protection for financed and cash car purchases, particularly in the early years of ownership when depreciation is most significant. To determine if GAP insurance is right for you, assess your vehicle's depreciation rate, intended ownership duration, and financial risk tolerance. By carefully considering these factors, you can make an informed decision that best suits your needs and safeguards your investment.
Quickfire FAQs on GAP Insurance and cash vehicle purchases 
Can you buy GAP insurance on a cash purchase?
Yes, there is a range of GAP products available, detailed above.
Do you need GAP insurance if you pay cash?
Not necessarily. If you are happy with the motor insurers' settlement to buy a replacement car, then great. However, if you buy GAP insurance, it can cover any shortfall between the motor insurers' settlement and what you paid for the original car or the replacement cost.
This can save you from dipping into your own funds or resources to pay for a replacement.
Can you take out GAP insurance after buying a car?
Yes, typically, you have a window after buying the car to purchase gap insurance. With our Total Loss Gap brand, it can be up to 180 days, or even 365 days, in certain circumstances on a new car.
How does GAP insurance work on a financed car?
Buying a Return to Invoice or Vehicle Replacement Gap on a financed car purchase means a slight difference from paying cash. It simply means you have to pay off the remaining finance settlement from the overall settlement you get.
Can you get GAP insurance at any time?
Probably not, or there are fewer options. If you are outside the window for RTI or VRI GAP Insurance for your car, you could still look at Agreed Value Gap cover in some circumstances.
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Best Buy
Total Loss Gap is pleased to confirm that we have been recognised as the 'Best Buy' for GAP Insurance in the UK by motoring giant Auto Express.
Auto Express undertook an independent survey of various Gap Insurance providers in the UK. They took a standard quote from a franchised primary dealer for a £32,270 vehicle and obtained a quote for three year Gap cover for £449. 
This quote was then compared against many online providers for alternative quotations.
Auto Express highlighted the ease at which a quote can be obtained from the Total Loss Gap website.
It confirmed the premium found at Total Loss Gap was 59% cheaper than the motor dealer at £185.28
Total Loss Gap was the ONLY provider to be given a full 5 out of 5-star rating.
Total Loss Gap was also awarded the 'Best Buy' for Gap Insurance in the UK for 2021.
Auto Express also commented that Total Loss was the only provider they found to allow deferred start dates. This would allow a later start date if the motor insurers' replacement cover covered the car in year one.
In awarding the Best Buy to Total Loss Gap, Auto Express concluded that we were 'Clear, honest and good value.'
A spokesperson for Total Loss Gap said 'We are honoured to be the only Gap Insurance provider to get a 5 Star award and the only Gap provider to get the 'Best Buy' recommendation from such as name as Auto Express."
"At Total Loss Gap, we always strive to provide our customers with the best 'value' with the products we provide. Value can be found in the service we provide, the features you get, and the premium price you pay. It is great to see that an industry giant agrees with us too."
The Auto Express Gap Insurance review can be found in the current magazine and can be found on the Auto Express website also. (CLICK HERE to see)