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What are the limitations of your GAP Policy

Many people are reluctant to buy a new car because they immediately lose value when driven out of the dealership. According to the RAC, between 15% and 30% of a car value is lost during the first 12 months and 50% during the first three years. You could find yourself seriously out of pocket if you are unlucky enough to have your vehicle stolen or written off. Even comprehensive car insurance may only settle for the market value at the time of the write-off, which doesn’t cover any depreciation or finance loan balance. This is where GAP insurance comes into the picture.

GAP insurance, or Guaranteed Asset Protection insurance, is a specific type of car insurance designed, to cover this ‘gap’ or difference between the comprehensive auto insurance payout and the amount initially paid for your vehicle (or the outstanding auto loan balance, if this is higher).

Here, we discuss the general requirements of GAP insurance and the general exclusions of a GAP policy. Finally, we cover the circumstances where your GAP insurance claim may be rejected so you can avoid being left out of pocket.

GAP Insurance general requirements

The following conditions must be met for certain policies in order to take out this type of insurance coverage. Some of these are general conditions, please check policy-specific conditions here:

  • You must have comprehensive coverage from your car insurance provider.
  • Track and racing cars are excluded
  • Courier and taxi vehicles are excluded
  • The car must be less than 10 years old and have no more than 100,000 miles on the clock (check your specific policy).
  • The policyholder must hold a valid driving license to use in the UK.
  • Only right-hand drive vehicles can have GAP insurance cover.
  • Ferraris, Lamborghinis, Maseratis and Rolls Royces are excluded on certain policies.
  • Check your policy for age requirements (policyholder may need to be 18 or over).

Read more about general policy exclusions and restrictions here

General exclusions for GAP insurance claims

Before claiming on your GAP insurance policy, you need to know what isn’t covered and in which circumstances your claim may be rejected.

  • GAP insurance only pays out if your comprehensive car insurance company pays out. If your motor insurance company does not pay a complete settlement claim for whatever reason, your GAP coverage will not apply.
  • GAP insurance does not offer liability cover. This must come from the comprehensive coverage of your car insurer.
  • Your claim may be invalidated if the vehicle was modified against the manufacturer’s advice or guidelines.
  • Any claim will be invalidated if the total loss resulted from a deliberate or criminal act.
  • ALA insurance does not cover negative equity – if you have finance that has been carried over from another vehicle, this amount called negative equity is not covered on our GAP insurance policies. If you have negative equity that you want covered, look for a GAP insurer offering this service.
  • You cannot make a GAP insurance claim if you turn down any offer from your comprehensive car insurance provider to repair or replace the insured vehicle.
  • You can’t claim if you have another similar policy with a different insurance company.
  • You also cannot claim if your comprehensive car insurer offers you a new for old replacement vehicle during the first twelve months.

Your comprehensive car insurance provider may settle with you at less than the market value agreed upon with the policyholder. In this case, GAP insurance may only pay the shortfall between the market value and the original price (or remaining loan balance), not the settlement figure.

Contract hire GAP insurance exclusions

Contract Hire GAP policy insurance pays the rest of your contract payments on a lease agreement and covers any market value shortfall in the settlement from your comprehensive car insurance company. Your lease hire vehicle deposit is not covered by ALA GAP insurance unless this additional coverage is added to your policy.

If your claim is successful, you will need a new GAP insurance policy on any new leased vehicle.

Making a GAP insurance claim

For your claim to be successful, there are several things you need to be aware of about the ALA claim’s procedure.

  • You must register your claim within 120 days following the date of the total loss.
  • You must comply with the policy requirements, or your claim could be invalidated. Read the insurance terms and conditions carefully.
  • Make sure that the insurance information is 100% accurate.

There are also another couple of important points to consider concerning the comprehensive auto insurance you have in place:

  • Before you agree on a settlement figure with your car insurance provider, you should first consult with your GAP insurance policy provider. If you do not, there is a chance that ALA will renegotiate your comprehensive insurance settlement.
  • A GAP payment can only be made once your comprehensive car insurance provider has confirmed the vehicle as a total loss and has confirmed the settlement.

GAP insurance with ALA

Here at ALA, we offer various types of GAP coverage, including:

  • Back to Invoice GAP insurance, which offers to pay the difference between your car insurer’s market value settlement and the invoice price of your vehicle, or the finance loan settlement figure, whichever is higher at the time.
  • Vehicle Replacement GAP insurance offers to pay the difference between your car insurer’s market value settlement figure and the cost of replacing your car (new for old) or the finance loan settlement figure, whichever is higher.
  • Contract Hire GAP insurance offers to pay off the outstanding lease payments to your hire company and any additional shortfall between the market value settlement figure from your comprehensive car insurance. Your deposit can be covered with this type of GAP insurance for an additional premium.
  • Agreed Value GAP insurance offers to pay the difference between your car insurer’s market value (at the time of the total loss) settlement and the market value of the car (according to the Glass’ Guide) at the time of purchasing GAP insurance.

Whichever type of GAP insurance policy you decide is more appropriate for you, it is crucial to check out the exclusions and limitations for that particular policy type outlined in the policy wording and the IPID.

Our GAP policies have an independent 5-star rating by Defaqto and our policies are fully insured and protected by the Financial Conduct Authority, so you would be in great hands by choosing ALA insurance.

19 July 2023

Written by Simon England

|  5 Minutes

This article was written by our Founder & Managing Director.

Simon England

Simon has worked in the automotive and insurance industries for 40 years. He, alongside business partner and wife, Debra...