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GAP Insurance (Guaranteed Asset Protection)

Guaranteed Asset Protection Insurance, commonly referred to as GAP Insurance, works by covering the shortfall between the remaining finance on a vehicle and the amount that the insurance company claim your vehicle to be worth if your car is stolen or written off. GAP is available for new and used vehicles that are purchased with a car finance product.

Why Is GAP Insurance Important?

As a vehicle ages and its mileage accumulates, the value of the vehicle will decrease. This is called depreciation. If your car is stolen or written off in an accident, standard insurance policies will only cover the value of the car at the point of the incident, leaving you to make up the shortfall. A shortfall in this context is when a car insurance pay-out is less than the amount needed to settle the remaining finance. If in the event of an insurance write-off the settlement is equal to or more than the finance still owed, you will not need to claim on your GAP insurance policy because your car insurance has sufficiently covered you.

The amount of shortfall can differ because some cars depreciate more quickly than others. If you pay a large deposit for a vehicle when you finance it, you may not require GAP insurance. This will depend on the condition of the vehicle, which could make the amount of finance that you owe on the vehicle significantly lower than the value of the car.

GAP differs from RTI GAP insurance because RTI will cover you for the difference between the remaining finance and the original sales invoice price of the vehicle. Find out more about the benefits of RTI GAP insurance on our dedicated RTI GAP glossary page.

Gap Example

An example of how GAP Insurance works is shown below:

  • Purchase price of vehicle - £11,000
  • Total finance amount payable (including interest) - £12,000
  • Finance term - 5 years
  • Customer A - Has GAP Insurance
  • Customer B - No GAP Insurance

Scenario: After a year on the finance agreement above you have paid £2,400 towards your finance, but you write the car off in an accident and your insurance company will only pay out £8,000 (as that is now the current market value of the car - the car has depreciated by £3,000 during this period). The finance company will require the remaining £9,600 to be settled. This leaves you with a shortfall of £1,600 to make up.

Customer A: Can claim on their GAP policy and the shortfall is covered by this insurance. This customer is now free to organise another vehicle without having lost out.

Customer B: Is in the unfortunate position where they will need to pay the £1,600 to ensure they settle the finance.

Please note that the above scenario is entirely fictional and only used to explain the purpose of GAP Insurance.

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