Glossary · UK
What is GAP Insurance?
Optional insurance that covers the shortfall between a car's comprehensive motor insurance payout after a total loss and the amount still owed on finance, or the original purchase price.
Full Definition
GAP insurance (Guaranteed Asset Protection) covers the difference -- the "gap" -- between what a standard comprehensive motor insurance policy pays out if a car is written off or stolen and not recovered, and either the amount still outstanding on the car's finance agreement, or the car's original purchase price, depending on the specific policy type. Because cars depreciate quickly, particularly in their first two to three years, and because motor insurers pay out based on the car's current market value at the time of loss (not what was paid for it or what is still owed on finance), a driver who bought the car new or on a finance agreement such as PCP or Hire Purchase can otherwise be left having to keep paying off a loan for a car they no longer have, or having to find a large sum to replace it like-for-like. The main variants are Finance GAP (covers the shortfall between the insurer's payout and the outstanding finance settlement figure), Return to Invoice GAP (covers the shortfall between the payout and the original invoice price paid for the car), and Vehicle Replacement GAP (covers the shortfall needed to buy an equivalent new replacement car). GAP insurance is sold separately from the main comprehensive motor insurance policy, often by the car dealer at the point of sale (typically at a higher price) or more cheaply by specialist standalone GAP insurers, and is generally most valuable in the first few years of ownership when depreciation losses are steepest and any outstanding finance balance is largest relative to the car's falling market value.