GAP insurance is a great option for most drivers, whether you have purchased your car upfront, taken out a contract hire deal or opted for a finance agreement. If you’ve chosen the latter, GAP insurance (Guaranteed Asset Protection insurance) is a great choice for protecting your investment should your car be declared a total loss (written off or stolen). PCP (Personal Contract Purchase) is the most popular way to finance a car; over 90% of cars bought on finance use a PCP deal. GAP insurance is worth considering alongside your agreement to protect you against a significant financial shortfall.
In this guide, we will explore how GAP insurance works in terms of car finance, what type of GAP insurance policy is best for PCP finance loans and whether GAP insurance covers both new and used cars. We will also explore the benefits of GAP insurance for cars on PCP finance. and how we can assist you in selecting the right GAP cover.
In this guide, we will explore how GAP insurance works in terms of car finance, what type of GAP insurance policy is best for PCP finance loans and whether GAP insurance covers both new and used cars. We will also explore the benefits of GAP insurance for cars on PCP finance. and how we can assist you in selecting the right GAP cover.
There are two types of GAP insurance that benefit car finance deals; Return to Invoice Plus (also called Back to Invoice Plus) and Vehicle Replacement Plus if your car is written off following an accident or theft. Return to Invoice Plus policies will pay the difference between your car insurance company’s settlement and the original invoice price of the vehicle or the outstanding finance balance, whichever is higher at the time of claim.
Vehicle Replacement Plus policies will cover the difference between your car insurance company’s settlement and the cost of a replacement vehicle of the same age, make, model and specifications as the car originally purchased if this is higher than the outstanding balance of your vehicle finance payments.
If your vehicle does not meet the requirements for these policies, for instance, if it is too old or you have waited too long to acquire a GAP policy, Agreed Value GAP insurance would still be available to you. You can use our GAP insurance quote builder to determine which policy will suit you best.
The best policy if you have a PCP ca r finance loan can depend on several factors, such as their personal circumstances, the level of cover you need, and the market value of your vehicle. There are two types of GAP cover that will cover your outstanding loan balance, these are Return to Invoice GAP and Vehicle Replacement GAP Insurance.
Return to Invoice Plus (also called Back to Invoice) are the most popular GAP insurance policies and will cover the financial shortfall amount between the insurance payout and the amount you originally paid.
How Back to Invoice GAP Insurance Works
For example, if you financed your car from a VAT-registered dealer with an original invoice price of £20,000, and your motor insurer paid a market value settlement of £10,000, your GAP insurance policy would pay out £10,000, taking you back to the original invoice price.
Alternatively, you will receive up to the outstanding finance amount if this is more than the original invoice price at the time of claim.
How Vehicle Replacement GAP Insurance Works
Vehicle Replacement Plus policies are similar but go the extra mile; if your £20,000 car has increased in price by £3,000, your GAP insurer would pay out £13,000 to cover the cost of a new replacement of the same car if your car was new to begin with (an equivalent will be provided if it was used).
However, like Back to Invoice, if the outstanding finance amount is higher, this will be paid instead.
Vehicle Replacement Plus policies offer an extra layer of protection in case the value of your car increases over time.
No matter whether your financed car is brand new or used, you will still be able to buy GAP insurance. However, there are some requirements you must meet. On Return to Invoice policies, your car must be less than ten years old and purchased from a VAT-registered dealer. To qualify for a Vehicle Replacement Plus policy, your vehicle must be less than seven years old, and have completed less than 80,000 miles. It should also have been collected from a VAT registered dealer.
GAP insurance can be more beneficial for new and relatively new cars because they lose a third of their value within the first three years. However, it could still save you money on a used car providing it meets the qualifying criteria above for your GAP insurance policy. In fact, the price of used cars has remained high since the dramatic market growth in 2022, so getting GAP insurance is a smart idea. If you would like to discuss these restrictions further to find the best GAP insurance policy for you, please get in touch with us today.
If you purchased your car on a PCP agreement, GAP insurance can provide you with various enticing benefits. GAP insurance bridges the financial GAP between what your motor insurance company pays out and the original invoice price or the cost of a replacement vehicle. It also helps you pay off the payments to your finance company you owe more than the car’s original value. When your car is written off or stolen, you shouldn’t have the extra worry of how you are going to pay for a new car, which is where GAP insurance can help you out.
With the cost-of-living crisis impacting all of us, GAP insurance can provide that much needed extra support if the worst should happen to your car. You can find out more about the benefits of GAP insurance here.
If you write off a car with a PCP deal, you risk being in negative equity*, whereby, you owe more than the current market value of your vehicle. In this case, your car insurance settlement won’t cover your outstanding finance completely – you’ll be left paying towards a car you no longer have, and you may struggle to put down a deposit for your next vehicle.
GAP Insurance covers the remaining loan on your PCP finance package, often with some cash left over to put towards a new finance agreement. Ultimately, GAP cover is a no-brainer if you want to be able to afford a suitable replacement vehicle after a total loss.
*ALA can’t cover the negative equity carried over from a previous finance agreement.
GAP insurance is available for most types of cars, no matter whether they were bought outright, financed or taken out on a personal contract hire agreement. If you took out a PCP loan to pay for your car, you can protect your investment should the worst happen.
Our GAP insurance policies at ALA range from one year to four years; the longer the policy is, the more cost-effective the policy will be. However, if your car is written off or stolen during this period, your policy will end, and you will need to take out a new one on a new car. You can either pay upfront, or make monthly payments. The latter option costs slightly more, but it offers the benefit of ten easy monthly payments.
When you write off a car, you will only receive a market value settlement from your comprehensive car insurer. New cars lose over a third of their value in the first three years, so your insurance claim will inevitably fall short. This is especially true if you have outstanding finance payments that your car insurance settlement doesn’t completely cover.
Without GAP insurance, you could be paying for a car you can no longer drive and you may struggle to afford a suitable replacement.
Simply put, GAP insurance tops up your car insurer’s market value settlement after a total loss to cover financial shortfalls due to depreciation, contract hire agreements, car finance or market forces.
GAP insurance is not compulsory cover like car insurance, but it can be a smart choice for avoiding a potentially significant out-of-pocket expense after a theft or write-off. Cars bought using PCP finance particularly benefit because of the additional risk of owing money to a finance company for a car you can no longer drive.
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