A Beginner’s Guide to GAP Insurance in the UK

If your car is stolen or written off, your comprehensive motor insurer will usually pay what the vehicle was worth when it was lost. That could be less than you paid for it, less than the cost of replacing it, or less than you still owe on finance.

GAP insurance can help cover that difference. The amount it pays depends on the type of policy you choose, the circumstances of your claim and the policy terms.

This guide explains how GAP insurance works, the main types of cover available from ALA Insurance and what to check before buying.

What is GAP insurance?

GAP stands for Guaranteed Asset Protection. It is designed to work alongside comprehensive motor insurance if your vehicle is declared a total loss, sometimes called a write-off.

Imagine you paid £25,000 for a car and your motor insurer values it at £16,000 when it is written off. That leaves a £9,000 difference. Depending on the GAP policy you hold, an eligible claim could help cover some or all of that shortfall, up to the policy’s claim limit.

GAP insurance does not replace your motor insurance. Your motor insurer must accept the total loss claim and make a settlement for a GAP claim to be considered.

Why might there be a shortfall?

Cars generally lose value over time. As a result, the market value your motor insurer pays after a total loss may be lower than the price you originally paid.

If you bought the car on Hire Purchase (HP) or Personal Contract Purchase (PCP), you may also have an outstanding finance balance. In some circumstances, the motor insurer’s settlement will not be enough to clear it.

The size of any shortfall depends on the vehicle, its value at the time of the loss, your finance agreement and the settlement offered by your motor insurer. GAP insurance is optional, so it is worth considering whether you could comfortably meet that difference yourself.

What types of GAP insurance does ALA offer?

ALA offers different types of GAP cover for vehicles bought outright, purchased on finance or leased. Each uses a different figure to calculate a potential payout.

Back to Invoice Plus

Back to Invoice Plus compares your motor insurer’s settlement with the original invoice price of your vehicle. If the eligible outstanding finance settlement is higher than the invoice price, the policy can use that higher figure instead, subject to its terms and claim limit.

This cover may suit someone who wants protection based on what they paid for a car bought from a VAT registered dealer. It is available for eligible new and used vehicles owned outright or bought on HP or PCP finance.

You can usually buy it within 180 days of taking delivery. A 365 day window may apply if the car was brand new when purchased and your motor insurer provided new car replacement cover for the first 12 months. Vehicle eligibility rules also apply.

Vehicle Replacement Plus

Vehicle Replacement Plus compares your motor insurer’s settlement with the cost of a vehicle matching the age, mileage, make, model and specification of the one you originally bought. If the eligible outstanding finance balance is higher, the policy can use that figure instead.

For example, if you bought your car brand new, the comparison is with the cost of an equivalent brand new vehicle at the time of the claim. If you bought it used, it is based on a vehicle matching the age of the one you originally purchased.

This cover may be useful if you are concerned that replacing your car could cost more than you originally paid. To be eligible, the vehicle generally needs to be less than seven years old, have covered fewer than 80,000 miles and have been collected from a VAT registered dealer within the previous 90 days.

Contract Hire Plus

Contract Hire Plus is designed for an eligible lease or contract hire agreement where you do not have the option to buy the vehicle at the end.

If the vehicle is declared a total loss, your motor insurer’s settlement may not cover everything you owe to end the agreement. Contract Hire Plus can help with the covered shortfall, including eligible outstanding rentals and any shortfall in the vehicle’s residual value, subject to the policy terms and claim limit.

Initial rental protection of up to £3,000 is also available. Whether it is included or costs extra depends on the policy selected. Contract Hire Plus can generally be purchased within 365 days of taking delivery of an eligible vehicle.

Agreed Value GAP

Agreed Value GAP uses the vehicle’s Glass’s Guide retail value when you buy the GAP policy as the figure against which a future motor insurance settlement is compared.

It can be an option if you bought your vehicle from a private seller or have owned it too long to qualify for another type of GAP cover. There is no general vehicle age, mileage or purchase timing restriction for this car policy, provided a Glass’s Guide valuation can be obtained and the other eligibility requirements are met.

What does GAP insurance not cover?

GAP policies have eligibility rules, exclusions and claim limits. These can vary by product and underwriter, so always read the policy wording and Insurance Product Information Document offered with your quote.

In general, you need comprehensive motor insurance on the vehicle. GAP insurance will not pay for ordinary repairs, servicing or a mechanical breakdown. A total loss claim must be accepted and settled by your motor insurer.

Amounts carried over from a previous vehicle’s finance agreement, such as negative equity, are not covered. Other costs included in a purchase or finance agreement may also be excluded.

Some vehicles or uses are outside standard GAP cover. These can include certain imports, vehicles with non-manufacturer specified modifications, and vehicles used for activities such as taxi work or deliveries. ALA offers separate products for some commercial and hire and reward uses, with their own eligibility rules.

If you are unsure whether your vehicle or its use qualifies, speak to ALA before buying.

How do you make a GAP insurance claim?

Start by reporting the incident to your comprehensive motor insurer. They will assess the claim and tell you whether the vehicle is a total loss.

If your motor insurer offers a settlement, contact ALA or the claims administrator named in your policy before accepting it. The administrator may need to review the offer or discuss the vehicle’s market value with your motor insurer.

You will be asked for information to support the claim. This may include your vehicle purchase invoice, GAP policy schedule, motor insurance documents and settlement offer. If the vehicle is on finance, you may also need your finance agreement and a current settlement figure.

Notify the claims administrator as soon as reasonably possible and check your own policy wording for the applicable deadlines. Notification and paperwork requirements can differ between policies. Once the claim has been assessed, any GAP payment will be calculated according to your cover, exclusions and claim limit.

What if my motor insurer offers a new car replacement?

Some comprehensive motor insurance policies offer to replace a brand new car with a new equivalent if it is written off during an initial period of cover. This is often called “new for old” cover.

If your motor insurer replaces the car, there may be no financial shortfall for your GAP policy to pay for that event. New car replacement also has conditions, so check your motor insurance documents to understand when it applies.

If you have new car replacement cover for the first 12 months, you may have longer to buy ALA Back to Invoice Plus. Check the eligibility conditions before relying on the extended purchase window. If your vehicle is replaced after a total loss, speak to ALA about the options for insuring the replacement.

How do I choose the right cover?

Start with how you obtained the vehicle. If you bought it outright or on HP or PCP finance, Back to Invoice Plus and Vehicle Replacement Plus may be relevant. If it is on a lease or contract hire agreement with no option to buy, look at Contract Hire Plus. Agreed Value GAP may suit a privately purchased vehicle or one you have owned for longer.

Then compare what each policy uses as its payout figure: the original invoice price, the replacement cost, the contract hire shortfall or the vehicle’s value when the GAP policy begins.

Finally, check the purchase window, vehicle eligibility, exclusions, claim limit and price. The best choice is the one whose cover matches the financial shortfall you want to protect against. ALA can help explain the options if you are unsure.

Is GAP insurance regulated?

Yes. The sale of GAP insurance is regulated by the Financial Conduct Authority (FCA). ALA IB Limited, trading as ALA Insurance Brokers, is authorised and regulated by the FCA. GAP policies are arranged by ALA and underwritten by an insurer identified in the policy documents.

Eligible customers may have protection through the Financial Services Compensation Scheme if a regulated firm fails. Whether compensation is available depends on the circumstances and the scheme’s rules.

GAP insurance FAQs

Can I buy GAP insurance for a used car?

Yes. ALA offers GAP options for eligible used cars, including vehicles bought from dealers and, through Agreed Value GAP, some vehicles bought privately. The cover available depends on the vehicle and when you bought it.

Does GAP insurance pay for repairs?

No. GAP insurance is primarily designed for an eligible total loss, when your motor insurer declares the vehicle a write-off. It does not pay for routine repairs or mechanical breakdowns.

Can I buy GAP insurance after I have owned my car for a while?

Possibly. Each product has different purchase rules. Back to Invoice Plus, Vehicle Replacement Plus and Contract Hire Plus have specific purchase windows. Agreed Value GAP can be bought later, provided the vehicle meets its eligibility requirements and a Glass’s Guide valuation is available.

What happens if I change my car?

Contact ALA before assuming your existing policy will cover the replacement. Depending on the circumstances, you may be able to use the unused portion of your premium towards a new policy. There is no administration fee for doing this, but there could be an additional premium to pay.

Will GAP insurance always pay if my motor insurer pays?

A motor insurance settlement is an essential starting point, but a GAP claim still has to meet the terms of your particular policy. Its exclusions, payout calculation and claim limit will apply.

Before you buy

GAP insurance can help protect against a shortfall if your vehicle is stolen or written off. The right cover depends on how you bought or leased the vehicle and which amount you would want the policy to protect.

Take a few minutes to compare the options and read the policy wording offered with your quote. If anything about your vehicle, finance agreement or existing motor insurance is unclear, ask ALA before taking out cover.