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GAP insurance explained: calculations

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 showroom. 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 pay out 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 there is a lot you won’t be covered for on your standard, comprehensive insurance. Unless you have the available funds to cover a total loss, if your car is stolen or involved in an accident this could be financially difficult to recover from. Fortunately, there could be a solution to prevent this: GAP insurance.

If you’re wondering what GAP insurance is and how it could help you in the event of a claim, this guide is for you. We’ll introduce some of the different types of GAP insurance and explain how they’re calculated, so you can understand how a GAP policy might work for you.

What is GAP insurance?

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.

GAP insurance works alongside your standard, comprehensive car insurance coverage to ensure you have robust protection for any and all eventualities. It 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 policy premium would be calculated would depend 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.

How much could you be short

Vehicle Value


Length of ownership (years):

You’d be short!

Only £8,550

would be covered by your
Comprehensive Car Insurance

Vehicle Replacement Plus calculations

Vehicle Replacement Plus would suit you if you’re concerned about the potential increased 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 replacement cost or the outstanding finance. 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 would go to a dealer towards replacing your car.

Calculator on a desk

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 with less than 100,000 miles on the clock 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.