By Clare Yates
7 min read
Think of it like this: you drive your car off the forecourt, it starts losing value immediately, and if it’s stolen or written off your standard insurer will only pay the current market value. That could be much lower than what you paid.
This guide will take you through what GAP insurance is, when it makes sense, the types of cover on offer, how to decide whether you need it and pitfalls to watch out for.
What is GAP insurance and why consider it?
GAP insurance protects you if your car loses value faster than you can pay it off. When a vehicle is written off or stolen, your normal car insurance typically only pays its current market value – not the price you paid or what’s left on your finance. GAP cover fills that shortfall so you’re not left out of pocket.
For example, say you buy a car for £25,000. After two years, it might be worth just £17,000. If it’s written off, that’s the payout you’ll get from your standard insurer. But if you still owe £21,000 on your loan, there’s a £4,000 gap to cover. That’s where GAP insurance comes in.
It can be particularly handy for newer cars, high-value models or vehicles bought on finance or lease. If your car’s older and fully paid for, you may decide it’s not worth it. But for many people, it’s a useful safety net against sudden depreciation.
When is GAP insurance useful?
Here are some situations where GAP insurance can make real sense:
You bought a new or nearly new car: The value drop will be steepest.
You’ve got car finance or lease in place: You could owe more than the car’s market value.
You want replacement certainty: You’d rather replace your car with another similar one than accept a lower payout.
Your vehicle is high-value or specialist: These tend to depreciate heavily or cost more to replace.
Bear in mind that, according to the RAC, new cars typically plunge in value by 15-35% in the first year alone – and up to 50% or more by year three. It’s not just about depreciation when buying a car outright though. If you’re buying with finance or leasing, you could owe more than the car’s worth. GAP insurance protects you from being left paying for a vehicle you no longer have.
On the other hand, you might not need GAP insurance if:
You paid a large deposit and owe less than your car is worth.
You could cover any gap yourself if the car was written off or stolen.
Your loan term is short, so the risk of negative equity is low.
Your fully comprehensive insurance already includes new car replacement.
If you paid cash, bought a used car or you don’t mind a less-expensive replacement, GAP cover may be less critical.
Types of GAP insurance
Not all GAP insurance is the same, there are three main types, and each protects you in a slightly different way.
Return to invoice (RTI): This pays the difference between what your standard car insurance gives you (your car’s current value) and what you originally paid for it. Handy if your car’s written off and you don’t want to lose out on what you first spent.
Vehicle replacement: This one goes a step further. It doesn’t just cover what you paid – it covers the cost of buying a brand-new version of the same car, even if prices have gone up since. So if a new model now costs more than yours did, you’re still covered for the full amount.
Contract hire: If you lease your car with no option to buy the car at end-of-term, this is the version you’ll need. It covers the shortfall between your insurer’s payout and the amount you still owe on your lease if the car’s stolen or written off.
What is excluded from GAP insurance?
GAP insurance isn’t a magic safety net, and there are some things it won’t cover. First and foremost, you need to have fully comprehensive car insurance in place, otherwise GAP cover won’t kick in at all. Other typical exclusions include:
Depreciation from age or mileage: The natural loss in value as your car gets older or racks up miles.
Negligence or poor maintenance: Damage caused by skipping regular servicing, leaving the car unlocked, or other avoidable mistakes.
Normal wear and tear: Scratches, scuffed seats or other minor signs of use that reduce your car’s value.
Uninsured extras: Modifications or add-ons like alloy wheels or tinted windows that aren’t covered by your standard policy.
Always read the small print so you know exactly what your GAP policy does – and doesn’t – cover.
Benefits and drawbacks of GAP insurance
GAP insurance can be a real lifesaver if your car is written off or stolen; it helps prevent you from being left paying for a car you no longer have. But it’s not one-size-fits-all. Depending on your car, finance deal and insurance policy, it might be either essential or completely unnecessary.
Here’s a quick rundown of the main benefits and potential drawbacks to help you decide.
Benefits and drawbacks of GAP insurance
Benefits | Drawbacks |
|---|---|
Stops you from owing money on a car that’s been written off. | Not for everyone; mainly useful for new or nearly new cars bought on finance or lease. |
Particularly helpful if you bought your car with a small deposit, long-term loan or high interest rate. | Can be pricey, especially through a dealership. Compare prices before committing. |
Often easy to add to your loan or lease for convenience. | Some finance contracts may already offer similar protection. Check before buying. |
Protects against cars losing value quickly or if you have a large final payment due. | Coverage can be limited, usually only covers the loan or lease balance, not repairs, upgrades, or unpaid premiums. |
Provides peace of mind, knowing your out-of-pocket costs are reduced. | Some insurance policies provide new car replacement in the first year, making GAP unnecessary. |
FCA’s role in GAP insurance
The Financial Conduct Authority (FCA) investigated GAP insurance in 2024 to make sure that policies were giving good value. Previously there had been concerns that too much of the money paid in premiums was going to dealer commissions.
The May 2024 review found that commissions were now lower, so GAP insurance was better value for customers. Even so, some major providers have paused sales to make sure drivers were treated fairly.
So is GAP insurance worth it?
GAP insurance isn’t for everyone, but for many drivers it offers important peace of mind. If your car’s value will drop fast, you’ve got finance or leasing, or you want to ensure you’re not left paying for a car you no longer have, GAP cover can protect you from a nasty financial surprise.
Ask yourself:
Would you be left with a big bill if your car was written off tomorrow?
Do you owe more on your car than you’d get from your insurer if it was declared a total loss?
Do you want to replace it with a similar model, or are you happy with a lower payout?
If you answered “yes” to any of the above, GAP insurance could be worth considering. But if you own a cheaper used car outright, you have cash savings to cover any loss, and value dropping isn’t a concern, GAP may not be cost-effective
In any case, do your homework. Check what your current insurance covers, consider how much depreciation or finance you face, compare options and read policy documents carefully. A little time now can save a lot of worry (or cost) later.