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Do you need GAP insurance for cars bought outright?

19 September 2023

Written by Katie Rollin

|  5 Minutes

A row of cars parked in parking spots

GAP insurance, or Guaranteed Asset Protection insurance, helps protect your finances if your car is written off. Most people buy a GAP policy for financed vehicles so that if their car is written off and the outstanding loan balance is more than the car is currently worth, they will not suffer a significant financial shortfall.

If you purchased a car outright and not on a Personal Contract Purchase scheme, you may wonder if you still need GAP insurance cover on your new car. Here we explore who GAP insurance would be suitable for and whether it is worth getting GAP insurance for cash sales. Finally, we examine the benefits of ALA GAP insurance for cars bought outright.

Do you need GAP insurance if you bought your car outright?

A typical Back to Invoice GAP insurance policy is designed to cover the shortfall between the market value of your car at the time it gets written off and the original value of the vehicle, OR the amount still owed on finance, whichever is higher at the time.

As mentioned, GAP insurance can be helpful for cars bought on PCP; however, cars bought outright can also hugely benefit from GAP insurance. New or nearly new vehicles depreciate especially quickly. Brand-new cars can depreciate by 10-20% the moment they leave the showroom, while new cars depreciate a further 10-20% within the first year.

If a car is written off, most car insurance companies offering comprehensive coverage will only cover the vehicle’s market value at the time of the total loss – meaning, you will pay out of your pocket for vehicle depreciation without a GAP insurance policy.

With a GAP insurance policy, you make a small monthly payment over a period of three or four years; this helps protect you from losing cash value from vehicle depreciation. The bottom line is that whether you have bought your car on finance or outright, you can still benefit from GAP insurance to protect against a total loss.

The inside of an Audi showing a wheel

Who is GAP insurance for?

The majority of vehicle owners can benefit from GAP insurance. If you have bought a used or new car worth less than £150,000 (depending on the policy), is less than ten years old, with less than 100,000 miles on the clock, you could be eligible for a GAP insurance policy with ALA.

Some vehicle owners may particularly benefit from GAP insurance. These benefits include:

  • Coverage of fast-depreciating car brands. GAP insurance is best suited to car brands that lose value quickly, such as the Audi S7/A8 or the Fiat Tipo. Brand-new cars would always benefit from GAP coverage.
  • Coverage of outstanding finance loan balance for cars bought on car finance. If your vehicle is written off, you will not be paying back a loan for a car you no longer own.
  • Offers to pay for a replacement, even if the cost is higher than you originally paid. This is ideal for cars bought at a discount or new vehicles expected to cost more in the future.
  • GAP insurance can even cover car leasing.
  • Your car doesn’t have to be new or brand new to get GAP insurance, and you can purchase through a private seller and still be eligible for a GAP policy.

GAP insurance with ALA

We are a well-established insurance company with over 25 years of experience offering total loss GAP insurance for cars bought outright, on PCP or on lease. We are regulated by the Financial Conduct Authority and choose to offer competitive prices to suit every driver.

ALA Insurance offers four different types of GAP policies:

  • Back to Invoice Plus – pays the difference between your comprehensive car insurance payout (based on the current market value) and the original amount paid for the vehicle.
  • Vehicle Replacement Plus – this will cover the difference between the auto insurance settlement and the replacement cost of your vehicle. You will receive a cash payment equivalent to the replacement vehicle price.
  • Contract Hire Plus – covers up to 100% of any outstanding lease payments on your contract hire vehicle.
  • Agreed Value – covers the difference between your comprehensive car insurance payout and the market value of your vehicle at the time of taking out a GAP policy with us (based on Glass’s Guide).

You may want to opt for Back to Invoice or Vehicle Replacement Insurance for a car bought outright through a VAT-registered dealer. While if you have purchased your vehicle from a private seller or it was delivered over 180 days ago, you may only be eligible for Agreed Value Insurance.

The front view of a car driving down a road

Frequently Asked Questions

When is the best time to buy GAP Insurance?

You can buy GAP insurance as long as your vehicle meets the requirements for your GAP policy. However, we advise buying GAP insurance before driving your vehicle away from the seller. It is also a good idea to avoid getting GAP insurance from the car dealership as this can cost 60% more compared to an independent GAP insurer.

Get a GAP insurance quote for your new car today!

What if I sell the car before the GAP policy term ends?

You can sell your car before your GAP policy term ends and receive a pro-rata refund of the unused premium. You cannot transfer your policy to the new owner, and you will need a new GAP policy for any replacement vehicle.

Do you need GAP insurance if you have full coverage?

Yes, GAP insurance is still beneficial even if you have full insurance coverage. Comprehensive motor insurance cover only pays out at the market value after a total loss, so you can still suffer a significant financial shortfall.

If you have new for old on your insurance, do you need GAP insurance?

Your motor insurer may offer a new for old replacement within the first year, so you might not need GAP insurance in this time. However, purchase a GAP insurance policy before this initial year is up to protect your investment after the first year.