Cheap GAP Insurance
How to cut GAP insurance costs; mis-selling advice
In This Guide
GAP Insurance Costs
Do I need GAP Insurance?
There’s a good chance you’ve heard of GAP insurance, but an equally good chance you don’t know exactly what it is, because you dismissed it the moment a car dealer tried to sell it to you.
That’s fair enough – nobody likes being sold the extras – but it’s worthwhile knowing exactly what GAP insurance is because it might just work for you.
So what is GAP insurance, and why the capital letters?
GAP stands for Guaranteed Asset Protection.
It keeps my asset safe, then?
Not quite. It makes sure you have enough money to replace your asset if you lose it. A better name might be GAR insurance, but that’s not as catchy, and in fact, the word ‘gap’ neatly explains how GAP insurance works.
How does it work?
GAP insurance covers the ‘gap’ between what you actually paid for your asset, and what it’s worth at the time you lose it. So it’s especially suited to something you’ve bought that’s high-priced, but the value of which drops instantly at a consistent and alarming rate…
…like a car?
Exactly. The idea is that, for a one-off payment, the GAP insurance company guarantees that in the event your car is written off you’ll not be out of pocket. In theory.
In theory? Sounds ominous.
We are talking about insurance, so of course it’s not as simple as that. There are different types of GAP insurance, each with limitations and restrictions. And then there’s the basic question as to whether you even need it in the first place.
What are the types of GAP insurance then?
The main two are ‘finance’ and ‘return to invoice’. Finance GAP insurance is designed to protect a car owner against losses if their car is written off but there’s still outstanding finance on it, while return to invoice GAP makes sure that for a car you own outright you get back the full price that you paid for it. In both cases, the GAP insurance provider tops up the difference between what your car insurance company pays out and what you actually need.
Some GAP providers also offer a third type of policy that insures against the rising cost of cars, so that if your car is written off but its list price has risen since you bought it, you’re not out of pocket for the extra when it comes to getting a new replacement.
But why would I need any of this? Shouldn’t my insurance company pay me in full?
Good point, but unfortunately most car insurance policies only cover the value of the car at the time it was written off – in insurance terms, this is called the ‘retail market value at the point of total loss.’
And isn’t GAP insurance just another way of a car salesman getting more commission?
It can be, yes, and it has been known for car salesmen to mis-sell GAP insurance by not properly explaining it – similar to the way the banks got into trouble with the whole PPI thing, but on nowhere near the scale. And, to be clear, GAP is in no way a sham product, and can work well for some buyers.
How do I avoid getting ripped off then?
You’re already halfway there, because knowing what GAP insurance is allows you to make an informed decision about whether it’s for you, as well as checking that it’s not been surreptitiously bundled into your new car finance with you knowing.
Where can I buy GAP Insurance from?
If you're buying from a dealer, they will usually try and sell you their GAP insurance. We say shop aorund first to see if you're getting good value. Companies offering GAP insurance include ALA Insurance*, Click4Gap*, EasyGap, MotorEasy* and GapInsurance123.
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How can I get the best deal on GAP insurance?
GAP insurance can be a valuable service for new and used buyers, ensuring that you’re not left out of pocket in the unfortunate event of a write-off.
For others, it’s an unnecessary additional expense. So here are our top 10 tips for deciding if GAP is for you, and if it is, getting the most suitable product at the best price.
Risk versus reward
GAP insurance is a ‘risk versus reward’ decision, and as with most insurance products, largely about peace of mind. You need to weigh up what the worst-case scenario is: how likely is it that you’ll be substantially out of pocket if your car is written off? And is that likelihood worth paying an extra insurance premium for?
Check your car insurance policy
It could be that your existing insurance policy covers you for an ‘old for new’ replacement if your car is written off, especially within the first year of cover/ownership. Check what your car insurance covers before signing up for a GAP policy.
Choose the right policy
There’s more than one type of GAP insurance. If you’re paying for your car on finance, it’s finance GAP you need to cover any shortfall between the payout for your car and the value of your loan. If you’ve paid cash and own the car, it’s a return to invoice policy you’ll want, which covers the difference between the market value of your car when it’s written off and the cost of a new replacement.
Future worth
Find out how quickly your car is likely to depreciate over time then imagine that depreciation as a line on a graph. Work out what your car will be worth in 6-, 12-, 18- months’ time, and so on. This will give you a sound basis on which to base a decision on GAP insurance’s suitability for you.
Don’t be fooled
Some salespeople make a handsome commission on selling GAP insurance and will try to peddle it as hard as possible. It is not a prerequisite for any finance deal. First of all, make sure it’s not been automatically added to the policy – if it has, have it removed. If it hasn’t, but the salesman intimates that it’s necessary, politely decline. You can always buy an additional GAP policy elsewhere.
Calculate
It’s not the most interesting thing in the world (for most people, anyway), but it’s worth getting your calculator out and running up some scenarios if you’re paying for your car on finance. Using your car depreciation knowledge from point four, compare what your car is worth at various intervals to what you owe on your finance deal at the same time.
If the difference is only a few pounds you might decide that you can cover this shortfall. But if it’s hundreds, or even thousands, then GAP cover is probably for you. Or a car that depreciates more slowly.
Shop around
We can't say this enough. There are myriad companies offering GAP insurance policies and at good prices. Independent specialists will almost always undercut a car dealer because the dealer is usually a middleman anyway, adding his commission on top.
Know your rights
As with any financial service, GAP insurance comes with a cooling off period – usually 30 days for all GAP providers – so that you can change your mind. Make sure you get this in writing before signing anything and beware of companies that charge extortionate cancellation fees within this period.
Check the policy thoroughly
It’s not unheard of for a salesman – either deliberately or ignorantly – to claim that a GAP policy will cover a much greater shortfall than it actually does. GAP insurance does not automatically wipe out all of your finance debt.
There all kinds of restrictions and limitations in place. Check these before agreeing. If your car has a dealer-fit body kit, for example, will your policy cover the value of its replacement?
Clarify the policy
Ask someone at your GAP provider to go through, in simple terms, what the policy covers – any restrictions and limitations, and the terms of payment in the event of a write off. This will clarify matters for you and cut through all the jargon on your policy. And keep your policy documents safe, of course.
How does the law protect me?
In order to make buying a car from a dealer fairer and to stop GAP insurance becoming just another 'add on', the FCA changed the rules into how GAP Insurance can be sold from 1 September 2015.
Dealers selling GAP insurance are not allowed to sell it at the same time as the car is sold. There must be a buffer of a couple of days between you being given the cost of the car and the day you can buy GAP insurance.
This is to give you time to think about whether it's right for you, to shop around and not to sign up to something without fully realising what it is. If you think you have been mis-sold GAP insurance, our advice below gives details on what you can do.
How does GAP insurance work for vans and pick-ups?
To the most important question then - what is van GAP insurance? Put in the most simple terms Guaranteed Asset Protection is designed to cover the ‘gap’ between the cost of replacing your van and what your insurance company will pay out in the event that it is a total loss.
If that should happen your standard van insurance policy will only pay out to the value of the van at the time it is written-off - commonly known as ‘retail market value at the point of total loss.’
Read this specialist guide for GAP Insurance for a commercial vehicle
What if I think my GAP insurance was mis-sold?
Car dealers can pocket a healthy commission selling GAP insurance at an inflated price – sometimes up to 10 times the policy’s worth, according to one expert we spoke to – so it’s not unknown for some to use morally dubious tactics to sell it to new car buyers. If you think you’ve been mis-sold GAP insurance, help is at hand. Below are the main types of GAP insurance mis-selling.
Deception
At the most malevolent end of the spectrum, it could be that you’ve had a GAP policy bundled into your finance agreement without your knowledge. It’s more likely that the mis-selling was subtler than that, but it’s worth checking the terms of your car finance agreement anyway.
Forceful selling
In order to make additional commission, some dealers claim that a finance agreement cannot be taken out unless GAP insurance is applied. This is simply not true, and you’ve been mis-sold. As with other types of insurance, this also applies to other GAP providers using pressure tactics to make unnecessary sales.
Not correctly described
This often only manifests itself as a claim is being made, but it can be the case that a salesperson makes exaggerated claims about cover – that it guarantees to cover the entire finance shortfall, for example, when it’s actually very limited. Buyers must be told about all the limitations, restrictions and terms of the policy at the point of sale. If not, there may be a legitimate mis-selling claim.
Incorrect/unsuitable policy
On occasion, a buyer can be sold the wrong type of GAP policy – you think you have finance GAP insurance, when in fact you’ve been sold return to invoice insurance, for example.
Restrictive policy
The 1999 Unfair Terms in Consumer Contracts Regulations is designed to ensure that all insurance agreements are reasonable – that the terms aren’t so restrictive or unfair that the policy could never actually pay out. If you feel your GAP cover has too many limitations, you could have a mis-selling claim.
Think you have a GAP Insurance mis-selling claim?
Step 1: Approach the dealer principal of the dealership that sold you your car, or the company that sold you the GAP if you bought it separately. Be sure to write or email with your complaint, so that all correspondence is on record. Outline your complaint clearly and methodically, explaining the grounds on which you believe your GAP was mis-sold.
In a best case scenario the seller will work with you on a solution – and companies are legally required to reply to you in writing to acknowledge your claim. Although because life is rarely that simple, you have other options.
Step 2: Approach the Citizen’s Advice Bureau if you feel you need some help or representation when approaching the mis-seller.
Step 3: The Financial Ombudsman website (financial-ombudsman.org.uk) has more detailed advice on the law regarding GAP sales and what you can do. The Ombudsman has a helpline that consumers can contact to talk through maters (020 7964 1400), and can help you make a claim.
Step 4: For more serious cases, the Financial Conduct Authority exists to regulate companies that sell financial services. It does not pursue individual claims, but has plenty of advice and a consumer helpline: 0800 111 6768.
Is there an optimum number of years for GAP insurance?
Do I need a tracker if I'm buying GAP insurance?
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