Whether new or used, cars depreciate in value as soon as they are driven. This is one of the many considerations to make when purchasing a vehicle; another is the risk of financial shortfalls in the event your car is stolen, severely damaged or written off after an accident. If this were to happen, your motor insurer may only pay out for the depreciated market value of your car at the point of a claim.
This is where guaranteed asset protection (GAP) insurance comes in. It is designed to provide a financial safety net so you are not left out of pocket after your car is declared a total loss.
Often GAP insurance is only associated with new cars, but it is available for used cars as well. So, if you’ve just bought a vehicle second-hand, or you’ve had your car for a while, you may be wondering: would GAP insurance be worth it?
This guide attempts to answer this question by considering the benefits and limitations of GAP insurance for used cars, as well as some suitable policy types for this kind of vehicle.
In the event of a claim, Back to Invoice Plus (sometimes also referred to as Return to Invoice Plus) will pay you the difference between the original price you paid for your car and the market value settlement from your motor insurer, or your outstanding finance (whichever is higher).
You can buy this policy for your used car if it is less than 10 years old, owned for less than 180 days either outright or on finance, up to a value of £125,000.
Vehicle Replacement Plus will provide you with an additional settlement to cover the shortfall between your motor insurer’s market value pay out and the replacement cost of an equivalent vehicle or your outstanding finance, whichever is higher at the time of a claim. Replacement costs refer to buying an equivalent vehicle in terms of age, mileage, make, model and specification as your original car.
You can buy this policy if your used car is less than seven years old, is valued at no more than £125,000, has covered less than 80,000 miles and was collected from a VAT-registered car dealership within the last 90 days.
Agreed Value GAP insurance is suitable for vehicles purchased from private sellers. It can also be used for vehicles bought from dealerships but where time restrictions mean Back to Invoice Plus or Vehicle Replacement Plus GAP coverage isn’t possible.
This type of policy is for vehicles that are less than 10 years old and have covered less than 100,000 miles. If you have owned your used car for more than a year and it isn’t an excluded vehicle, this is an ideal GAP insurance policy for you.
GAP insurance can help you avoid some of the extra costs that could arise should your motor insurance provider declare your vehicle a total loss. Because almost all cars depreciate in value as soon as they are driven, motor insurance companies will only pay out for the car’s market value at the time you make a claim, not the amount you originally purchased the car for.
Used car finance has become increasingly popular over the last decade, and this type of purchase plan can involve more risks than outright ownership for buyers. For example, if you buy a used car on finance and you are involved in a road accident, the interest accumulated on the finance agreement could mean you have to pay a large sum of money to your lender that wouldn’t be covered by your insurance company.
Buying an expensive used car can often mean borrowing more money on finance, but if yours is written off by your motor insurer as a total loss, you could be seriously out of pocket. A robust GAP insurance policy will help bridge the difference between what you owe to the finance company at the point of a claim and what your standard car insurance policy would be able to pay out. Alternatively, if you owe less on finance, you will benefit from ALA paying up to the invoice price/replacement cost of your vehicle as not all of the payment will go to your finance company.
If you recently bought a ‘new’ used car (i.e. one that is only a year old) and are paying for it on a long-term finance agreement, you could benefit from GAP insurance.
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There are some limitations to consider when deciding whether to get GAP insurance coverage for your used car. Firstly, it’s not as useful for used cars as it is for new cars. This is because new cars simply depreciate in value much quicker than used cars do. For example, a new car can depreciate as much as 60% in value in the first three years of ownership. For a used car over the same period, that figure is around 25%.
Though not strictly limitations, there are some coverage restrictions to bear in mind. The most important in relation to used cars is that there will be a maximum age limit for cars under a certain policy type. For Vehicle Replacement Plus, this is seven years.
GAP insurance is only available if you have fully comprehensive car insurance. This means that if your standard motor insurance provider refuses a claim, your GAP insurance won’t pay out. It also won’t cover any additional expenses such as missed finance payments.
Ultimately whether GAP insurance will be ‘worth it’ for your used car depends on a number of factors, and there is no definitive ‘yes’ or ‘no’ answer.
GAP insurance would be a valuable asset if you have a newer used car and/or are paying for it on finance over a number of years. In this case, GAP insurance would provide some much-needed financial support should your car be declared a total loss, particularly if you owe much more than the purchase price when you make your claim.
Likewise, it would be beneficial if you secured your car with a small down payment or purchased it from a private seller but would still like the protection GAP insurance coverage provides.
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