When you buy a new car, you’ll be excited to have a new set of wheels. You’re looking forward to no more breakdowns and being covered by a new warranty. But what if something does go wrong?
With a new car, GAP insurance might be something your dealer asks you to consider as protection against total loss or unrecovered theft. We look at what’s on offer, the difference between GAP insurance and car insurance, and where GAP cover insurance might be useful.
If you buy a new car and it gets written off or stolen, Guaranteed Asset Protection or GAP insurance pays the difference between your main car insurance policy settlement and the amount it would cost you to buy a new replacement.
New cars lose their value quickly, and as soon as you drive one off the garage forecourt it’s usually worth less than you paid for it. An insurance company will only pay you an amount equal to the car’s value at the time of the incident, leaving you with a gap. And that’s where GAP insurance comes in.
How much value a car loses varies across makes and models, but it can be 15-35% in your first year of ownership, rising to 50% or more over three years. So if you paid £20,000 for a new car, at the end of the first year it could be worth only £13,500. And by the end of 3 years it could be worth as little as £10,000.
GAP insurance is designed to cover the difference between
Car GAP insurance isn’t compulsory when you buy a new car but is an additional policy that you might be offered by your car dealer, or that you can buy independently. It’s typically only an option to add GAP insurance to your policy if you have a Comprehensive car insurance policy, so you won’t be able to buy it if you have Third Party or Third Party, Fire and Theft policies.
GAP insurance can also be used to cover the gap if you’ve used finance to buy a car, but your insurance settlement isn’t enough to cover the outstanding amount in full.
To claim on GAP insurance your car must be considered a total loss by your car insurance provider, either through accident damage or theft. Before you accept any car insurance settlement offer, you contact your GAP insurance provider to make sure that they will cover the whole gap amount. The provider will usually want to be involved in these discussions before making their own offer of payment to you.
Providing your claim is successful, you’ll then be able to buy a replacement new car or pay off outstanding finance on the one you’ve lost.
There are several types of GAP insurance available, designed for different situations and dependent on your particular needs.
The type of GAP insurance you need depends on what cover you’re looking for and how you bought or financed your car.
Before you take out GAP insurance, you should review your main car insurance policy, as many policies include a ‘new for old’ clause that may offer some of the protection that standalone GAP insurance coverage offers.
With Saga Plus and Saga Select Comprehensive policies you get two years of new for old cover included (Saga Standard includes cover for one year). If you’ve owned your car from new and it’s up to a year old, we’ll replace it with a brand new one if it’s written off. Cars between one and two years old are covered up to 12,000 miles with Saga Plus and Saga Select.
There are a number of things that GAP insurance typically doesn’t cover:
You should always check your Policy Book so you understand what is and isn't covered.
If you’re asking yourself if you should get GAP insurance, the answer depends on your personal circumstances. GAP insurance can be useful but isn’t always the right answer for everyone.
You might first be introduced to GAP insurance by a dealer when you are buying a new car, as you may be given a GAP insurance quote alongside the costs of a new car.
Concerns in the past that dealerships were selling GAP insurance as a hidden extra with a new car led to a change in rules by the Financial Conduct Authority in 2015, that said dealers must make sure that GAP insurance is explained to customers at the point of sale. Dealers must now leave two days after they sell you a car to approach you about GAP insurance.
The GAP insurance price you pay to a dealer may be considerably higher than you would pay if you buy online from independent sites. The cost will depend on the value of your car and where you buy the GAP insurance. It’s usually paid for at the start of a policy, rather than in monthly payments.
By comparing the details of different policies and checking a number of providers alongside the dealer price, you’ll be able to get the best price for your needs.
To do this you should consider:
When you’re looking at the costs and benefits of GAP insurance, you should also compare this with the cover your car insurance offers in a total loss situation. This may influence your decision on whether and how much GAP insurance cover you need.
Saga Plus and Saga Select Comprehensive car policies include a two year new for old benefit, which offers protection in a total loss situation on a new car (Saga Standard includes cover for one year).
Most GAP insurance policies are taken out close to the purchase of a new car, and some policies may have specific timelines in which you need to buy.
Some policies can be bought a year or more after you buy your car, as long as you meet specific conditions around age and mileage. The first year of ownership is often the one with the biggest gap due to initial depreciation, so you should always consider how GAP insurance supports your situation.
Other policies will allow you to buy your GAP insurance but defer it, for example if you already have one or two years’ new for old cover on your car insurance.
If your car is stolen and can’t be recovered, you make a claim on your car insurance and a separate claim on your GAP insurance to recover the cost of your stolen car.
If your car is recovered, it will not be covered by GAP insurance, but your car insurance company will assess the damage and you’ll be able to claim for repairs.
GAP insurance protects you against a fall in a car’s value after you buy it, so is most useful when you buy a new car. You can take out a policy that lasts several years but it will provide less benefit over time.
If you’re using finance or a loan to pay for a new car, then GAP insurance might be useful for the length of your finance agreement.
With Saga Plus and Saga Select Comprehensive car policies, our new for old benefit will replace your car for a new one if it is declared a total loss in year one, and if your car is still under 12,000 at the end of year two. Saga Standard includes cover for one year.
Find out more about Saga Plus and Saga Select Comprehensive Car Insurance.
GAP insurance on used cars is available but is less common. The loss in value on a used car after purchase is much less significant than on a new car, as a high amount of a car’s depreciation costs happen in the first year.
GAP insurance may not be as useful with a used car as the gap between original cost versus value is much smaller.
This is dependent on the terms of your GAP insurance policy and is something you should check when you buy this insurance. It may be possible to transfer the insurance to a new policy if you’re buying another new car, or you may be eligible for a partial refund if you no longer need the GAP insurance.
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