Insurance basics

GAP insurance explained

What GAP insurance is, how it covers the shortfall between a vehicle's value and what you still owe on finance, and who may find it useful.

GAP insurance, short for guaranteed asset protection, is a type of insurance that covers the difference between what you still owe on a vehicle finance agreement and the vehicle's market value if it is written off or stolen and not recovered.

How GAP insurance works

When you buy a vehicle on finance, you can often owe more on the agreement than the vehicle is worth, because vehicles tend to lose value quickly, particularly in the first few years.

If the vehicle is written off or stolen, your motor insurer will normally only pay its market value at the time of the loss. That may not be enough to clear the remaining finance. GAP insurance is designed to bridge that gap by paying the difference between the insurer's settlement and the amount you still owe.

An example

Say you owe more on your finance agreement than your car is currently worth. If the car is written off, your motor insurer pays its market value. Without GAP insurance, you would still have to pay the rest of the finance on a car you no longer have. A GAP policy would cover that shortfall, subject to its terms and limits.

Types of GAP insurance

There are a few different types. Some cover the finance shortfall, while others aim to cover the difference between the market value and what you originally paid, or the cost of a replacement vehicle. It is worth reading the policy wording carefully to see exactly what is paid and any limits that apply.

Where you can buy it

GAP insurance is often offered by car dealers when you buy a vehicle, and some insurers sell it separately. It can usually be bought at the time of purchase or added later. The cost varies with the type of vehicle, the length of the finance agreement and the amount of cover needed. You do not have to buy it from the dealer selling you the vehicle.

Who may find it useful

GAP insurance may be useful for people who have financed a new car or have a long finance agreement with a high balance. It can give financial protection after a total loss and help you avoid owing money on a vehicle you no longer have. For independent guidance on car finance and insurance, see MoneyHelper, the free government-backed service.

Kompare doesn't currently offer quotes for GAP insurance. You can see the cover we do help with on our how we work page.