What is GAP insurance?

Guaranteed Asset Protection (GAP) insurance covers the difference between the total value of your vehicle and how much your car insurer will pay you if an unfortunate circumstance should occur.

Acquiring a new car should be one of the most positive experiences for a driver. Picking the exact trim and specifications we most want, down to the colour and the interior upholstery can be an incredibly enjoyable experience. However, when a new car stolen or is involved in a traffic collision, rendered irreparable and written off, this experience can swiftly take a turn for the worse.

Since most cars lose, on average, up to 40 per cent in value after just one year on the road, the insurance policy for your new car will pay out far less than the price you originally paid for your vehicle should you make a claim. 

Gap insurance was created to protect drivers from this significant value depreciation in the event of their car being stolen or being involved in a major accident. There are several different types of gap insurance available to purchase suited for different circumstances. If you’re pondering the question ‘what is gap insurance?’, you’ll find all the answers you need below. We’ll delve into the different kinds of gap cover available along with advice on price and a full explanation of exactly what gap insurance is, how it works and whether you require it for your car.

Gap insurance cover types

Gap car insurance is cover designed to protect you when you find yourself making a claim on your regular car insurance and the payout you receive is less than either the value or cost of your car when you purchased it. In effect, gap car insurance will pay for any difference between these sums so you don’t suffer a financial loss.

For the most part, gap insurance is most commonly associated with cars that are bought new, although it is possible to purchase gap insurance for a car that’s bought second-hand, if it’s less than seven years of age. Beyond this, most car insurance companies will classify a car as to old and won’t cover the outstanding gap.

While gap insurance can be useful for some car owners, it’s worth bearing in mind that it’s not essential. If your car is stolen or written off, your car insurer should pay out for the cost of replacing your car and if your vehicle is less than a year old, the replacement should be a brand new car.

You’ll find three main kinds of gap insurance available on the market, each of which can efficiently top-up the sum of money you’d receive from the insurance company if you make a claim. 

What is RTI GAP insurance?

RTI is an abbreviation for Return to Invoice, a kind of gap insurance that covers the difference between the specific sum of money you paid when purchasing your car and the amount your car insurer will pay out if your vehicle is stolen or written off. This amount the insurer will pay is sometimes referred to as a maximum pay out or ‘total loss’ payment.


Return to Value insurance cover, on the other hand, will pay out the difference between the maximum or total loss payment of your car insurer and your car’s value when it was brand new. This kind of gap insurance is normally aimed at those who purchased a second-hand car.

Finally, Vehicle Replacement cover will pay out the difference between the maximum or total loss payment and the price of replacing your vehicle like-for-like with a new car – in the same make, model and specification. This particular cover is suited for drivers who might wish to replace their vehicle with a newer model, as it can save you the cost of paying the difference when a comparable car has become far more costly than the original price you paid to purchase it.

You may also come across other variations of gap insurance designed to manage a leasing contract that leaves you with financial commitments outstanding or crafted to clear outstanding debt when you buy a car using a loan.

Gap insurance explained

It’s an unfortunate fact that when you purchase a new car, as soon as you drive it away from the dealership, it’s already dropped by a third in value. On average, in its first year alone, your car’s value will have fallen by 40 per cent, and typically by around 60 per cent over the space of three years.

If the worst should come to pass and your car is stolen, damaged so badly that it can’t be repaired, or it must be written off, then these drops in value can have dramatic consequences to your finances.

Your car insurer will only make payment for what your vehicle is worth at the time of the theft or write-off, which due to the depreciation of your car’s value is likely to be considerably less than what you paid when you purchased it, particularly if it was brand new.

Effectively this means that when you’re replacing your stolen or written-off vehicle, there will be a ‘gap’ between the price you originally purchased your car and the amount that your car insurer will pay to replace it.

If you select to purchase gap insurance, this will be the actual gap it’s covering. When you buy a car through a dealership, they’ll usually sell policies alongside your purchase. Typically, these are sold for around three years of cover but less expensive and comparable cover can be found online.

What does gap insurance cover?

Gap insurance covers the difference between the value of your car or the price you paid for it and the amount your car insurance will pay out if it must be written off following an accident or is stolen from you.

By the time such unfortunate incidents occur it’s likely your car will not be worth as much as the amount you originally paid for it, especially if you bought it brand new. Your car insurance policy will pay out what it’s worth when it’s written off, not what you paid for it,  and you will end up suffering a financial loss. Gap insurance overs this potential loss.

If you bought your car via a finance deal, a gap insurance policy could cover the outstanding finance due on your car, meaning you can avoid making monthly payments on a vehicle, which has been written off.

Do I need gap insurance?

The insurance policy you have for your car should permit you to replace your vehicle like-for-like with another car of similar condition and age if yours is stolen or written off. If that’s all you need from your insurance policy then gap insurance cover may not be necessary for you.

However, you might require gap insurance when you’re looking to replace your car with an all-new one. Gap insurance can also be of use if you acquired a finance agreement to purchase your new vehicle, because your insurance payment won’t be enough to settle your outstanding finance debt, which means you could be trapped making payments for a vehicle that’s been scrapped.

How much is gap insurance?

The cost of gap insurance varies from vendor to vendor. Prices can range from as little as £50 to as high as £375 covering you for a one to three-year term. As with all forms of purchase, when buying gap insurance for your car, the first step is to carry out some research and shop around for the best price.

As a rule, car dealerships will offer the highest quotes averaging about £100 for 12 months and £300 for gap insurance cover for three years. Online insurance brokers and specialist insurers are typically priced more competitively, with deals costing as little as £50 for a single year and £120 for three years easily found. 

Along with price, always make sure that you look at exactly what the policy covers and whether the gap insurance supports the key elements you’re looking to cover. Once you’ve completed your research, have a selection of all the best quotes available and have thoroughly checked the policy covers everything you require, you can make your decision.

The Financial Conduct Authority (FCA), tasked with regulating the insurance market, is now encouraging car buyers to consider all the options available rather than purchasing policies directly from their dealer. The FCA is also insisting auto-dealers must offer buyers ‘prescribed information’ to assist them in making fully informed decisions. Car dealers can’t sell gap insurance on the day the car is purchased either, after the prescribed information has been provided, the dealers must wait four days to sell gap insurance. However, this does not stop a car buyer from purchasing gap insurance elsewhere in this time.

To qualify for gap insurance, you must be 18 years of age or over before making an application and the registered keeper of the car in question.