What car gap insurance should I buy?

Gap insurance covers you for the ‘gap’ between the maximum value of your vehicle and the amount your car insurance company will pay you if your car were stolen or had to be written off.

If you’re looking to purchase gap insurance for your new or second-hand car, it’s worth finding out if you actually need it first. Knowing exactly what your car insurance covers is always a good place to start. How you bought your car is also worth considering. If you’ve purchased your car with the aid of a finance agreement, for example, cover of this kind might be a good way of protecting your finances and helping you to pay outstanding debts if the worst should happen.

There are many kinds of gap car insurance on the market to choose from including Return to Invoice insurance and Vehicle Replacement Cover. If you’re seriously considering the question ‘What car gap insurance should I buy?’, you’ll discover the answers you seek right here.

Car Gap insurance

It’s an unfortunate truth that every time you buy a brand new vehicle, from the moment you drive it home from the dealer its already lost a third of its value. In the first year your vehicle’s value will have dropped by a staggering 40 per cent, and by about 60 per cent over a three year period.

If your vehicle is damaged and must be written off or it’s stolen, this fall in value can cause significant financial losses.

Should either of these things occur, your insurer will make payment only for what your car is worth at the time, which due to your vehicle’s depreciation, is likely to be far less than the original price you paid for it.

This means that when you come to replace your written-off vehicle, you’ll find a financial gap between the price you originally paid for your car and the sum your car insurance company are willing to pay out.

If you decide to buy gap car insurance, this is the financial gap you are covering. When you purchase a car via a dealership, they’ll typically try to sell such policies along with your vehicle. On average, prices for these insurance policies range from between £100 to £300 for one to three years of cover, but more affordable and similar cover can usually be tracked down online.

What car gap insurance is right for me?

When it comes to deciding what gap car insurance you need, it’s worth considering if you require a policy of this kind at all. Depending on your personal circumstances, you may find this kind of insurance is not for you.

If you'd be content with a replacement car that isn’t brand new or if you’re not troubled by your vehicle’s depreciation, you probably don’t need gap insurance. Your car insurer will make payment for a replacement vehicle, which means you'll receive a car that’s like-for-like for the one you had stolen or written off. 

If your vehicle is not yet one year old and your car insurance is a fully comprehensive policy, you’ll likely not need gap car insurance either. Most policies of this kind will offer you a new car as a replacement in the first one to two years of a brand new car’s life. If your car insurance policy states this kind of cover, you won’t require gap insurance.

If you own a used car, it’s worth considering that gap insurance may not be appropriate because often these vehicles have already lost value before bought. Whereas a new car will lose 60 percent of its value over three years, a car that’s already three years old will lose its value much slower. In its first year it will fall by something like 14 per cent, in its second year 24 per cent and so on. The gap between the price you paid for your car and what your car insurer will pay out will be small, making gap insurance worth very little.

However, there are certain instances when gap insurance might be useful. 

If you're insistent on receiving a brand new vehicle in the event that yours is written off, gap car insurance might be for you. While your car insurance company will offer you a like-for-like replacement for your written off vehicle, it won’t be a brand new car as they’ll account for the drop in value making the amount far less than you originally paid out. If you won’t be happy with this, gap car insurance could be cover worth considering.

Similarly, if you’ve used a finance deal to purchase a vehicle, such as a personal contract plan or car loan, then you might find a gap car insurance policy useful. When you buy a car on finance, if it's stolen or written off,  your car insurance policy will pay out only up to the value the car is worth at this time. This means you'll still be left paying back your loan at the original value of the car at the time of purchase. 

Whether your car is damaged and written off or not, you’ll still be paying back the debt. If you buy gap car insurance, it’ll allow you to pay off this outstanding finance and avoid the situation of keeping up monthly payments on a car you can’t make use of.

Different types of gap insurance

You’ll discover four types of gap car insurance readily available to purchase, each of which will effectively top-up the amount of money you’ll be awarded by the insurer that provides cover for your car.

Return to Invoice, sometimes called RTI insurance, is a form of gap car insurance cover that covers the entire difference between the exact amount of money you paid to purchase your car and the sum your car insurer will pay you if your car is either stolen or must be written off due to extensive damage. The amount the car insurer will pay out is also sometimes called a ‘total loss’ payment or a ‘maximum payout’.

Return to Value gap car insurance will pay for the difference found between the total loss or maximum payment received from your car insurance policy and your vehicle’s value at the point it was brand new. This form of gap car insurance is usually offered to car buyers who purchased a vehicle second hand.

Vehicle Replacement Cover will cover the ‘gap’ between the maximum or total loss payment and the amount you need to pay to replace your car like-for-like with another of the same spec, model and make. This kind of cover is made for drivers who want to replace their car with a more up to date model as it can efficiently save you the cost of paying out the difference when a similar car has now become more expensive than the original amount you paid to buy it.

Finance Gap car insurance is designed specifically to cover car buyers who made their purchase using assistance from a personal loan, a PCP deal or an HP agreement. This particular gap insurance cover will pay the difference between the outstanding amount owed on a finance deal and the market value of the vehicle at the time a claim is made. For example, if you had £14,000 remaining on your finance agreement when your vehicle was written off, your car insurer might pay out £12,000 and your finance gap insurance would cover the remaining £2,000, paying off your outstanding debt in full.

What type of gap insurance do I need?

Different kinds of gap car insurance are suited to different circumstances, so look at why you want to cover the gap between payments and your own situation to find the best type for you.

RTI or Return to Invoice cover pays the difference between the amount you paid for your car and the vehicle’s market value when you make your claim. If you paid a higher amount of money for your car than the market value when you purchased it, then Return to Invoice Gap car insurance is a good selection.

Return to Value cover pays the difference between its market value when you bought it and the market value at the time it must be written off. This kind of policy doesn’t account for what you paid for your car, so if you bought your vehicle with a discount it could be beneficial to you.

Vehicle replacement cover works in a very similar way to Return to Value cover, but it pays you the new market value for your car instead of its original market value. This type of cover is typically made available only to demonstration vehicles or brand new cars and is often more expensive because ultimately it can payout more than you originally paid to buy your car.

Car finance gap cover will only be available to you if you have leased your car or purchased it through a finance deal. You should consider finance gap cover if you want to ensure you’ll have no outstanding finance if your car must be written off. Although you won’t have funds for a new car your debt will be fully repaid.