As a precautionary measure, a GAP insurance policy certainly makes sense. Whether you bought your car outright or on a finance deal, the average new car’s value can depreciate by 40% within a year. Should your car be written off or stolen, you could lose a significant chunk of change.
Most car insurance policies will only match the car’s current market value at the time of a potential accident or theft, and GAP insurance pays out the ‘gap’ between the car’s current market value and what you paid for it (or the price of a replacement car), and pays off any outstanding finance or leasing payments.
If you have bought a new car from a dealership, its very likely you have already heard of GAP insurance, and considering the piece of mind it provides, it might seem like a no-brainer to tie one of these policies on to your car finance or lease deal while in the showroom.
However, make sure the price is right. Dealerships tend to overcharge for GAP insurance, and you will find a better deal by looking elsewhere online.
Would a GAP insurance policy benefit me?
Often for the cost of a few extra pounds a month, a GAP insurance policy essentially protects the investment you made in your car, and can save you plenty of time, money and worry if your car gets written off after an accident, or stolen by criminals.
That said, GAP cover won’t be all that beneficial in some scenarios. Keep in mind that your showroom salesman could still try to sell you GAP insurance, even when they know it will be of little benefit to you. You don’t really need this type of insurance if:
- You have just bought your new car with a fully comprehensive insurance policy – most comprehensive car insurance policies come with a ‘new car replacement’ clause that is active for the first 12 or even 24 months. If you have an insurance policy like this, added GAP insurance is of no benefit to you for the time that this clause is active.
- You don’t mind opting for a used replacement car – If you don’t want coverage for your car’s depreciation, and would be perfectly happy with a used replacement car the same age as your former car that was written off or stolen, you don’t need GAP insurance.
- You are buying a used car – GAP insurance can be quite handy coverage for nearly-new used cars that are one or two years old, but GAP cover can be a bit of a waste of money when it comes to older cars. This is because a new car’s value will drop significantly in the first three years of ownership, but it will depreciate at a much slower rate beyond that point.
How much should I be paying for GAP insurance?
As you would expect, the newer and more expensive your car is, the more expensive your GAP insurance policy will be. That said, numerous consumer outlets report that if you opt for this type of cover from your local dealership, you will be paying over the odds.
According to motoring outlet What Car?, which researched GAP cover prices in 2022, GAP insurance can cost up to 61% more from a franchised dealer than online brokers. One of these brokers, our commercial partner ALA Insurance, claims that their policies could be up to 75% cheaper than the quote you got from the dealership.
The best way to find out how much you should actually be paying for GAP insurance is by visiting the MoneySuperMarket website, which after taking your details, will give you GAP cover quotes from several independent providers at once.
Dealerships often offer inflated GAP insurance prices in the hopes that the convenience of the offer convinces you that it isn’t worth looking for elsewhere. If you intend on opting for a GAP insurance cover from your dealer, please keep in mind:
- There is a two-day cooling off period – in 2017, the Financial Conduct Authority (FCA) made it mandatory for dealerships to give car buyers a two-day cooling off period after informing them about products such as GAP. Even if you agree to buy, this means that you have two days to look online for a better price, and cancel your agreement with the salesman if you do find one.
- You need to read the terms and conditions – I know, it’s pretty damn boring. But, as with any contract, you need to understand what you are signing up for. You could find better contract terms for a cheaper fee online – our partner ALA insurance offers policies that give you a longer time limit for making a claim than some dealers, and policies that allow you to transfer any unused premium to a new policy when you sell the car.
- What the policy will not cover – keep in mind that a GAP insurance policy will not cover you if you have a third-party car insurance policy, and that GAP insurance only pays out in the event of an accident or theft, as judged by the insurance provider. Please also note that GAP insurance does not cover any modifications to your car, such as new alloys, spoilers and upholstery.
