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What is Gap insurance?

  Tuesday, 30 October 2018

Car crashes into the back of another

It’s no secret that dealing with insurance companies and assessors can be an unpleasant experience, especially if you’re already worried about your stolen or accident-damaged vehicle.  With many insurers compensating customers at the current value of their vehicle – as opposed to its value when the vehicle was bought – motorists can quickly find themselves drained of funds after wrestling over their claim, especially if the vehicle was brand new.

The ‘GAP’ in Gap insurance stands for ‘Guaranteed Asset Protection’.  There are many different kinds but, largely, this type of insurance is designed to complement your traditional comprehensive car insurance to cover any shortfall between a car’s value (to be defined) and any insurance pay-outs.

Here we’ll examine some of the different types of Gap insurance available, look at when drivers should consider buying Gap insurance, and other important information for you to consider.

Types of Gap insurance

The insurance market can be a complicated arena, and the same is doubly true for Gap insurance in particular.  Competing providers sometimes offer vastly different products with distinct offerings.  Some help you recoup the value you paid for a written-off car, while others help motorists to pay off outstanding loans on their vehicles.

For simplicity’s sake, listed below are some of the most common policies motorists will encounter.

Finance Gap insurance

Finance Gap insurance is one of the most basic product offerings available.  It helps the owner of a written-off vehicle to cover any remaining loans or outstanding payments from the date of purchase.


Joe’s car is worth £16,000 at market value.  Joe also owes £21,000 in outstanding finance payments.  In the event of this car’s total write-off, Joe’s insurance policy will only reimburse him to the tune of £16,000.  That leaves Joe with more payments to make, but with no car!  Gap insurance, in Joe’s case, would cover the £5,000 ‘gap’ between the amount of money reimbursed and the amount that remains owed since the car’s purchase.

Return to invoice Gap insurance

This type of insurance is designed to bolster any insurance claim pay-outs, bringing the total amount of money reimbursed in line with the amount the customer paid for the vehicle (as written on the invoice).


A car bought for £10,000 is written off and its driver reimbursed £4,000 for the car’s current market value.  Gap insurance would make up the difference of £6,000.

To ensure any borrowing costs are covered, many providers offer Finance Gap insurance in addition to or bundled with this product.

Vehicle replacement Gap insurance

Like Return to invoice Gap insurance, but in reverse, this product helps motorists to bridge the gap between car insurance pay-outs and the cost of replacing the written-off vehicle with a new one.  This product is also bundled with Finance Gap insurance on a regular basis.

Return to value Gap insurance

This product is very similar to return to invoice Gap insurance.  However, rather than helping motorists get what they paid for their car, this type of insurance aims to make up the difference between the pay-out and the value of the vehicle when the insurance policy was first purchased.  It is especially useful for owners of second hand or especially long-lived cars, but usually offered to cars which are fewer than seven years old.


When a car was worth £8,000, its driver bought an insurance policy.  When it is written off and its driver is reimbursed £6,000, Gap insurance would cover the difference with a sum of £2,000.

Lease Gap insurance

In cases where motorists leased their car rather than buying, Lease Gap insurance covers any fees and costs associated with the remainder of the contract or any premature cancellation of lending agreements.

Do I need Gap insurance?

Conventional car insurance is mandated by law.  Gap insurance, on the other hand, is not compulsory and is not always necessary.  However, there are a number of reasons a car owner may consider Gap insurance.  The type of insurance you decide to buy will depend on a range of factors including individual circumstances and a degree of personal choice.


Gap insurance can prove to be beneficial in cases where vehicles are bought on finance or using a personal loan - especially where loan-to-value ratios are high, with three or more years remaining on the agreement.  Gap insurance can ensure you aren’t left with an overwhelming shortfall in case of accident or theft.


If you have concerns about a vehicle that is rapidly depreciating in value, Gap insurance can be an excellent way to make up the difference in the damaged or stolen vehicle’s value and the amount your insurer is willing to reimburse.

Long-term leasing

Rental agreements over a long-term period, with an allowance for mileage, have the potential to leave motorists without a car and a sizeable bill in outstanding repayments.  Gap insurance can provide much-needed protection against this eventuality.

When you don’t need Gap insurance

The only time that Gap insurance could potentially be considered unnecessary is when a car is brand new.  Many insurers are happy to replace a written off car within the first year of purchase.  It’s worth checking with your current insurance company before researching any products and providers.  In fact, many insurers will only offer Gap insurance after the first 12 months of ownership.

Gap insurance advice

Gap insurance is available to buy from a wide range of providers, but historically it has been most commonly offered at the point of purchasing a car.  However, it’s never a good idea to rush.  To ensure you get the best deal, it’s highly advisable that motorists shop around and investigate the host of brokers, insurers and comparison sites that are out there.

It is no longer permissible for dealerships to sell Gap insurance on the same day they sell a car.  A two-day break is required unless you, as the customer, explicitly waive the waiting period.  Companies selling Gap insurance are also obliged by law to provide the following information:

  • Length of the policy
  • Total premium
  • Features, benefits, and unusual exclusions or limitations
  • Alternative standalone providers of the product, if applicable
  • Confirmation of whether the insurance is an optional or mandatory add-on to the vehicle being purchased

It is also a great idea to try and find out directly from the provider:

  • The current valuation of the vehicle
  • How to make a claim on your policy
  • How to cancel the policy, if and when necessary


Finding and purchasing the right type of Gap insurance is not always straightforward.  However, it can pay dividends when an unfortunate turn of events leads to a written off or stolen vehicle, resulting in a significant pay-out shortfall.  We hope that this article has helped to clarify any confusion around types of Gap insurance and what you should look out for.

At ASM, all of the used and salvaged vehicles we auction are categorised according to the requirements of the law.  We also ensure that only the best spare parts are kept at our sites, increasing your chance of getting a good deal on insurance on any repaired or auction-bought cars, vans or bikes.

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