GAP insurance explained: requirements, calculations, and documentation

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Buying a new car or nearly new car is a huge investment and you would naturally want to protect it against any eventuality. A car is stolen every minute in the UK and 500,000 cars are declared a total loss every year. In the event of total loss caused by an accident, accidental damage, fire, flood or theft for example, your comprehensive car insurance may only pay out at the value of the vehicle at the time of the incident.

Since a new car can initially depreciate by thousands of pounds only days after leaving the showroom, you may run the risk of a huge shortfall in the event of a total loss. This is where Guaranteed Asset Protection insurance (GAP) comes in. GAP insurance covers the difference between the pay out by your auto insurance provider and the original price paid for the vehicle, or the cost of replacing it. GAP insurance can also cover any outstanding finance on your vehicle.

There are different types of GAP insurance with ALA, including, Back to Invoice Plus, Vehicle Replacement Plus, Contract Hire Plus and Agreed Value GAP insurance. Back to Invoice insurance offers you the difference between the pay out by your car insurer and the original cost of the vehicle (including any outstanding car finance). Vehicle Replacement Plus offers the difference between the pay out by your car insurance provider and the cost of a replacement vehicle (or covers any outstanding vehicle finance, whichever is highest), even if the replacement vehicle costs more than you originally paid. Contract Hire Plus, for car leasing, will cover the difference between the auto insurance pay out and the amount that is owed to the lender. Finally, Agreed Value insurance offers the difference between the pay out by your comprehensive car insurance provider and the agreed value of the vehicle at the time of purchasing GAP insurance, based on the Glass’s Guide retail value.

This guide covers everything you need to know about the different types of GAP insurance, including, requirements for GAP insurance, pay out calculations, how to understand your ALA policy documents and the claims procedure.

GAP insurance requirements

General requirements

There are some general requirements for GAP insurance with ALA and some more specific requirements for each type of GAP insurance that we offer.

For GAP insurance with ALA, your vehicle must be registered in the UK, must not be left-hand drive and must be in the Glass’s Guide. GAP insurance with ALA excludes selected vehicles and vehicles by selected manufacturers.

Your vehicle must not have been declared a write-off previously to purchasing GAP insurance and the policy holder must also be the vehicle owner or the registered vehicle keeper. ALA requires that vehicle owners have comprehensive UK car insurance, and we request that you do not accept a settlement from your motor insurer before contacting your GAP insurer.

Back to Invoice plus requirements

Back to Invoice plus insurance requires that your vehicle is less than 10 years old and has been inured within 180 days of being delivered (365 days if the vehicle is less than 12 months and is covered new for old by your motor insurer for that year). Back to Invoice insurance covers vehicles up to the value of £150,000 and vehicles must have been purchased from a VAT-registered car dealer.

Vehicle Replacement Plus requirements

Vehicle Replacement Plus requires that your vehicle is less than 7 years old and less than the value of £150,000. Your vehicle must not have exceeded a mileage of 80,000 and you must have collected the vehicle from a VAT-registered car dealer within 90 days of insuring with ALA. Finally, you must have purchased your vehicle outright, on Hire Purchase or Personal Contract Purchase.

Contract Hire plus requirements

You must be leasing your vehicle with no option to buy; you must have collected your lease within 365 days and the vehicle is less than 10 years old. Eligible vehicles must be valued below £125,000.

Agreed Value GAP insurance

Agreed Value insurance is for vehicles purchased from a private seller, for those with an expired GAP insurance policy or those who have exceeded required time restrictions. Your GAP insurance pay out will be based on the Glass’s Guide value of your vehicle at the time of purchasing your GAP insurance.

Read more about GAP insurance requirements here.

GAP insurance calculations

GAP insurance is calculated differently depending on which type of insurance applies to your vehicle.

Back to Invoice calculations

For this type of GAP insurance, the type, age and original cost of the vehicle are taken into consideration. Also, the anticipated length of ownership, how long you want the vehicle to be covered for and how you paid for the vehicle is also considered. ALA will cover the difference between the amount paid out by your comprehensive insurer and the amount you originally paid for you vehicle (including any outstanding car finance).

Vehicle Replacement calculations

Vehicle Replacement insurance will cover difference between the pay out by your comprehensive insurance provider and the cost of an equivalent replacement. This type of insurance allows you to avoid a shortfall if the value of your car (new) is now higher than when you bought it. Vehicle Replacement insurance may cover the outstanding finance on your vehicle if this value is higher than the cost of replacing the vehicle.

Contract Hire calculations

This type of insurance for leased vehicles takes the value of the car and the amount you are paying to the lender monthly. This plan takes into account the possibility that the lender may request 100% of finance in the event of total loss. ALA will cover the difference between the amount owed to your finance company and the amount paid out by your comprehensive motor insurer.

Agreed Value

The GAP insurance pay out is calculated based on Glass’s Guide retail value of the vehicle. The difference between the retail value at the time of purchasing GAP insurance and the pay out by your comprehensive motor insurer will be offered by ALA on this type of insurance.

Read more about GAP insurance calculations here.

GAP insurance documents

ALA will provide you with two policy documents – your Policy Wording and an IPID. The Policy Wording includes comprehensive coverage of all the terms and conditions for your policy, including, eligibility, exclusions/restrictions, the claims and complaints procedure and cancellation. The IPID provides a summary of GAP coverage, restrictions, obligations and more. We recommend that you thoroughly read through both documents before beginning a policy with us so that you will understand your GAP insurance coverage, restrictions, and obligations once you begin your policy.

Read more about understanding your ALA policy documents here.

Making a claim

After a total loss incident and once your comprehensive car insurance company has provided an offer, you must contact ALA before accepting this settlement.

You must submit your claim to ALA within 120 days of the incident that resulted in a total loss. ALA may not fully pay out if you fail to claim within the required timeframe, however, if you need an extension, you may request one.

A non-exhaustive list of ALA GAP insurance claim requirements may be as follows:

  • Purchase invoice/order

  • Finance agreement

  • Settlement statement for finance agreement

  • Motor insurance certificate

  • Copy of motor insurance settlement

  • Policy wording