How GAP insurance works

Should your car be written-off or stolen soon after you take out a finance agreement, you could find yourself in a nasty situation.

You could potentially owe more than the car is worth, especially if you’ve put down a small deposit and the car depreciates heavily within the first few months. For example, if you buy a brand new car for £12,000 and write it off after a year, your insurer may offer you £8000, because that's what the trade guides say it's worth.

Be wary of salespeople steering you towards taking out GAP insurance when you don't need it

But if you still owe more than £8000 on the loan, you'd be in a situation where you owe more than the car is worth, potentially leaving you well out of pocket. To avoid getting into financial difficulties, the solution is to take out GAP (Guaranteed Asset Protection) insurance. There are two types of gap insurance:

  • RTI (return to invoice) insurance: This pays out the difference between the amount you paid for your car and the amount the insurance company say it's now worth.
  • Finance shortfall insurance: This ensures that you don't have any finance outstanding on your written-off car after you make a claim. However, it differs from RTI in that it doesn't give you any money back; it covers only the value of the outstanding finance.

The key points to take into account about GAP insurance are:

  • You don’t normally have to take out GAP insurance, although a finance company may insist you do if you’re a high-risk driver or you’ve paid only a very small deposit.
  • Be wary of salespeople steering you towards taking out GAP insurance when you don't need it - and also make sure that their charges aren't excessive. Shopping around can often save you cash. FirstCar offers GAP insurance; why not get a quote now?
  • You can pay for it as a one-off fee or maybe as part of your monthly finance repayments.
  • GAP insurance is unlikely to be worthwhile if you’ve put down a large deposit on your car.