Is it worth getting gap insurance?

Gap insurance can protect the value of your vehicle if you have an accident or it is stolen, but is it worth buying? Here is how to work out if gap insurance is right for you.

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What is gap insurance?

Guaranteed Asset Protection (Gap) insurance covers the difference between the amount you get from your insurer if your car is written off and what you paid when you bought it.

It might be offered by the dealership when you buy a car, but you can usually get a better deal by comparing policies and buying cover online.

Here is more information on how gap insurance works

When might you need it?

If you buy a car on finance

If you use a personal loan or finance deal to buy your car and it is written off, your car insurance payout may not cover your outstanding loan. This could happen if:

    If this happens you could end up without a car, and still owe money to your finance company without any spare cash to buy a new vehicle.

    If your car depreciates in value quickly

    Some cars depreciate faster than others, so it is worth finding out how quickly your car could lose value.

    The fastest depreciating cars lose up to 60% of their value after a year, and over 70% after three years.

    For example, If you write off a car you bought with cash for £16,000 after one year, and the value has depreciated by 60%, you will only receive £6,400 from your car insurer.

    In this example you could claim on your gap insurance policy for the outstanding £9,600 to cover the loss in value.

    When might you not need it?

    If you are already covered

    Some car insurance policies offer replacement cover if your car is written off or stolen in the first year.

    This means you would not need gap insurance in the first year.

    Some gap insurers let you defer your cover for the first year. This means you take out the policy when you buy the car, but the cover only starts after 12 months.

    However, you can only get some policies within three months of buying the car.

    If you can afford to make up the difference

    If you have enough money to make up the shortfall yourself, paying for a gap insurance policy may not be worth it.

    Also, you only really need gap insurance if you want a brand new car to replace your current one if it is written off. If you are happy to buy a second-hand replacement you can use your insurance payout.

    You have a used car

    You can still buy gap insurance for a second-hand car, however it is less useful because used vehicles depreciate in value much slower than brand new ones.

    For example, a three-year-old car might only depreciate in value by 30% in the first three years you own it, compared to up to 70% for a brand new vehicle.

    Which policy should you get?

    There are four main types of gap insurance:

    Return to invoice

      Compare return to invoice gap insurance here

      Return to value

        Vehicle replacement

          Compare vehicle replacement insurance here

          Finance gap insurance

            Here is how to work out the best way to buy a new car

            Gap insurance can cover the difference between what you paid for your car and what your insurer will pay out if it is written off.