GAP insurance savings calculated | Real-world examples

You have just bought your brand new car and can’t wait to get it out on the road, but you want to be cautious about protecting this huge purchase. Sadly, it will instantly depreciate in value the moment you drive away from the car dealership. This means that if your car is declared a total loss by your motor insurer following an accident, theft, fire or storm damage, you will only get a payout equivalent to the car’s current market value at the time you make your claim.

You want to ensure your new vehicle is protected in every way possible, but even comprehensive coverage won’t pay off your auto loan balance or cover your leasing deposit. Unless you have the available funds to cover a total loss, if your car is stolen or involved in an accident, this could significantly impact your finances. Fortunately, GAP insurance offers a solution.

If you’re wondering what GAP insurance is and how it acts as a safety net for drivers, this guide is for you. We’ll introduce some of the different types of GAP insurance and calculate the possible savings. This helps you understand how a GAP policy might benefit you.

GAP (or guaranteed asset protection) insurance is designed to cover the difference between your motor insurer’s market value settlement after your car is written off or stolen, and the price you originally paid for the car, whether it’s a brand new vehicle or a used one.

GAP insurance works alongside your standard, comprehensive car insurance coverage to ensure you have robust protection for many eventualities. This type of policy can help you get back on the road as soon as possible, without the stress of worrying about losing money or owing a substantial amount to a lender on your finance agreement.

ALA offers the following GAP insurance policies:

• Back to Invoice Plus
• Vehicle Replacement Plus
• Agreed Value
• Contract Hire Plus

Back to Invoice Plus calculations

In the event of a total loss, Back to Invoice Plus GAP insurance (also referred to as Return to Invoice) will cover the difference between your motor insurer’s market value settlement and the original price of your vehicle or finance settlement figure, whichever is higher at the time.

How your Back to Invoice GAP insurance calculation works is by estimating the difference between what you bought your car for and the amount it will be worth at the end of the policy. If you have car finance, your shortfall may be higher than someone who’s paid in cash for their car.

Your premium is based on a number of factors. These include the type, age and original cost of your vehicle, your anticipated length of ownership, whether it was paid for outright, on finance or through a lease, and how long you would like your policy to cover you for.

As an example, say you bought your new car without finance for £19,000 and anticipate you will own this car for one year. In the event of a claim, your comprehensive vehicle insurance may only pay out £12,350. This is figure is based on the annual depreciation rate of the vehicle, and reflects the current market value of the vehicle. This would leave a potential shortfall of £6,650. GAP insurance would cover this shortfall so you get back the full original invoice value for your car.

Alternatively, you may have bought your car on finance for £19,000 but owe £20,000 to your lender at the point of the claim because of accumulated interest. In this case, the market value from your motor insurance provider would still be £12,350, but your GAP insurance policy pay out would be £7,350 to leave you clear of any outstanding finance.

Vehicle Replacement Plus GAP insurance calculations

Vehicle Replacement Plus would suit you if you’re concerned about the potential increase in the cost of buying a replacement car of the same make and model after yours is declared a total loss. It will pay the difference between your comprehensive insurer’s settlement and the car’s replacement cost, or the outstanding finance balance. Replacement cost refers to a car which is equivalent in age, mileage, make/model and spec as the original car when it was first purchased.

If the purchase price of your car was £20,000, at the time of the claim the cost of replacing the vehicle could be £21,500. You might owe £17,000 to your finance company, but because of depreciation, your motor insurer may only pay out £15,000. Our Vehicle Replacement Plus would cover this shortfall. It would pay the difference between the insurer’s settlement and the replacement car cost. £17,000 would still need to go to your finance company, but the remaining £4,500 can go towards your next finance deposit.

Agreed Value calculations

Agreed Value GAP insurance is suitable for vehicles that have been purchased from private sellers or after the eligibility periods for Back to Invoice Plus and Vehicle Replacement Plus. It pays the difference between your comprehensive insurer’s market value settlement figure and the Glass’s Guide retail value of your car at the time you bought your GAP policy.

If your comprehensive settlement after a total loss is £10,000 but Glass’s Guide values your vehicle at £15,000 at the time you purchased your policy, your GAP coverage will pay the settlement of £5,000. This cover would be suitable for vehicles under 10 years old and bought within 180 days at the time of policy purchase.

Contract Hire Plus calculations

This GAP insurance will cover the difference between a motor insurer’s settlement and outstanding rental payments on a contract hire or lease vehicle, as well as any shortfall in that vehicle’s value. The cover calculations for this policy are based on the value of the car you want to insure and the amount you will be paying monthly to your lender. The claim limit provided will be informed by the possibility that your lender could request 100% of owed finance in the event of total loss, in addition to your motor insurer’s market value settlement.

For example, say your leased vehicle is valued at £20,000 and you owe £18,000 to your contract hire finance company, but after your car is written off after an accident you are only offered £10,000 from your standard car insurance policy. Contract Hire Plus GAP insurance coverage would pay the remaining £8,000 to leave you clear of owed finance.

In 2025, we had X number of GAP insurance claims and the average payout was X. The most common policy is a three-year Back to Invoice Plus costing an average of X.

Here are four randomly selected examples of typical GAP insurance claims for each of the policy types:

While everyone would hope not to have to claim GAP insurance, the potential cost could amount to thousands. GAP insurance is worth the peace of mind for thousands of ALA customers – read our reviews to learn more.

Frequently Asked Questions

What is the average cost of a GAP insurance policy?

The cost of a GAP insurance policy depends on the number of years your policy lasts, your car (its make, model, age and mileage), and the type of GAP insurance policy you choose. However, the most common policy is a three year back to invoice policy and the average price of this policy was X in 2025.

Is GAP insurance worth it?

While no driver ever hopes to use their cover, GAP insurance is worth it if you want to be able to afford a suitable replacement after a theft or a write-off. Often, the market value settlement from your auto insurance company is inadequate.

What variables do you need to consider when making GAP insurance calculations?

The total amount that GAP insurance can cover depends on several things, these are:

1. The age of the vehicle: cars lose value the most steeply in their first year, the more your car depreciates, the lower the actual cash value and the bigger your total loss shortfall. With Agreed Value policies, depreciation from the policy start date is covered.
2. The original value of the vehicle or the replacement cost: GAP insurance covers the difference between the original vehicle value (back to Invoice) or the replacement cost (vehicle replacement) and the market value settlement.
3. The outstanding loan amount: if you have a finance agreement and you still owe more than the car’s original value at the time of the write off, this will increase the maximum GAP payout.

If you have a lease agreement, your payout will be calculated differently