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GAP insurance

What is GAP insurance, who needs it, and where can you buy it?
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All the details on GAP insurance and whether it’s worth getting when you buy a car

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.

What is GAP insurance?

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.

What does GAP insurance cover?

GAP insurance is designed to cover the difference between

  • how much your car cost when you bought or financed it
  • the amount an insurance company would pay if your car were written off or stolen

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.

How does GAP insurance work?

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.

What types of GAP insurance are there?

There are several types of GAP insurance available, designed for different situations and dependent on your particular needs.

  • Return to invoice – covers the gap between your car insurance claim pay-out and the amount you bought the car for.
  • Return to value – covers the difference between your car insurance claim pay-out and the value of your car when it was first bought.
  • Vehicle replacement – covers the difference between your car insurance claim pay-out and the cost of replacing your car with a new one.
  • Finance – pays off any outstanding loan payments on a written off car but doesn’t include payments for negative equity.
  • Contract Hire or Lease – pays the rest of your lease contract and any fees that might apply for ending your agreement early.
  • Negative equity – covers the gap if the amount you borrowed is higher than the cost of your car, for example if you transferred a previous loan to a new finance agreement.

Which type of GAP insurance do I need?

The type of GAP insurance you need depends on what cover you’re looking for and how you bought or financed your car.

  • Return to invoice GAP insurance is mostly used for cars bought from a dealer in the last six months.
  • Return to value GAP insurance applies to cars past the six-month limit or for cars bought privately.
  • Contract Hire or Lease GAP insurance apply for leasing agreements.
  • Negative equity GAP insurance might work for you if you owe more money than the value of the 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.

What doesn’t GAP insurance cover?

There are a number of things that GAP insurance typically doesn’t cover:

  • It’s only available if you have Comprehensive car insurance, and not if you have Third Party or Third party, Fire and Theft.
  • It only pays out if your car is a total loss or is stolen and can’t be recovered – as decided by your car insurance company.
  • If you’ve made modifications to your car since you bought it, such as adding alloys or spoilers, these won’t be included in any settlement.
  • It won’t pay the difference if you under-estimated the value of your car when you took out the GAP insurance.

You should always check your Policy Book so you understand what is and isn't covered.

Is GAP insurance worth it?

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 want to consider GAP insurance if:

  • You have concerns about how quickly your car will depreciate – GAP insurance will cover the difference
  • You took out a large loan to buy your car – GAP insurance will help pay off outstanding finance
  • Your car is on a long-term lease – GAP insurance protects against you being left without a car that you have to continue paying for
  • You would want a brand-new replacement car if yours is a total loss, and wouldn’t be happy with a like-for like replacement car of a lower value

GAP insurance might not be such a good option if:

  • You have new for old cover included on your car insurance that will replace your car with a new one in the event of total loss – Saga Plus and Saga Select offer up to two years cover on Comprehensive car insurance policies
  • You would be happy with a replacement car that isn’t new
  • You’ve bought a second hand or used car – although GAP insurance is still available, it might be less appropriate as the depreciation on cars that aren’t new is much less, so the gap you need to cover is much smaller

You should consider all of these factors when looking for the best GAP insurance for your needs.

How much does GAP insurance cost?

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:

  • How much your new car costs
  • How long the policy lasts
  • What excesses you may have to pay
  • What exclusions the policy has
  • How you would make a claim if you needed to

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).

Find out more about Saga Comprehensive Car Insurance