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Which type of GAP insurance should I get for my new car?

16 November 2023

Written by Simon England

|  6 Minutes

Buying a brand-new car, even on PCP or Hire Purchase, is a huge investment, and you lose a significant amount of car value driving it away from the dealership on day one. If your car is declared a total loss, your comprehensive motor insurance company usually pays up to the current market value, not the original purchase price.

This is where Guaranteed Asset Protection insurance is useful. GAP coverage tops up the settlement from your motor insurer to cover the difference between the market value settlement and the car’s original purchase price or the remaining car finance, whichever is higher at the time.

What are the different types of GAP insurance?

There are four main types of GAP insurance, Back to Invoice, Vehicle Replacement, Contract Hire and Agreed Value GAP. The GAP insurance policy you choose depends on the following factors:

  • Whether you bought your vehicle from a VAT-registered car dealer or a private seller
  • How long ago you collected your vehicle/had it delivered
  • Whether you are using a car leasing service
  • Your preference for insurance cover type

Back to Invoice

This type of GAP insurance is available for cars under ten years old and bought from a VAT-registered dealer within 180 days (or 365 days if covered new-for-old by your insurer for the first 12 months). With this insurance cover, if your car is declared a total loss, we pay up to the original invoice price of the vehicle or the remaining finance, whichever is higher at the time.

Vehicle Replacement

This type of GAP insurance policy is available for cars under seven years old, under 80,000 miles and bought from a registered dealer within 90 days. With a Vehicle Replacement policy, we cover the shortfall between your market value settlement and the cost of a new-for-old replacement or the outstanding vehicle finance if this is higher.

Contract Hire GAP insurance.

If your new lease car is declared a total loss, you could owe the finance company a considerable amount in terms of outstanding payments and any shortfall from your comprehensive motor insurance payout. Contract Hire GAP insurance cover pays up to £3,000 of your initial deposit, your outstanding rental fees and the shortfall in your car insurer’s market value settlement.

Agreed Value GAP insurance

This type of insurance cover is not usually relevant to brand-new cars. Agreed Value GAP insurance is available for vehicles that don’t meet the timeframe requirements of the other policies or for cars bought from private sellers. This GAP policy covers the difference between your motor insurance settlement and the market value when taking out a policy – based on the Glass’s Guide.

Is dealership GAP insurance best for new cars?

You can buy total loss insurance from your car dealership, but to avoid pressure selling, dealerships are required to wait a day from your first visit to sell you a GAP policy. This is because of GAP insurance regulations for car dealerships set out by the Financial Conduct Authority. Moreover, on average, GAP insurance from a dealership costs up to 75% more than an independent GAP insurer.

The benefits of GAP insurance from an independent provider

Another provision of FCA regulations is that car dealers should make you aware of independent GAP insurance providers, so here are the benefits of shopping around:

Which GAP policy is the best for new cars?

New car owners risk a considerable financial shortfall after a total loss. New cars can depreciate up to 20% in the first year and between 5 and 10% on the first day. GAP insurance is a must for brand-new vehicles, but which GAP policy should you take out for your new car?

You will need a Contract Hire GAP insurance policy if you have a lease car. However, if you have bought your new car outright or on finance, chances are, you are eligible for a Back to Invoice or Vehicle Replacement policy. If you purchased your new car at a discount, a Vehicle Replacement policy can cover the cost of a replacement vehicle (not the price you paid). However, most new car owners will opt for a Back to Invoice policy.

Which car manufacturers need GAP insurance?

Whilst depreciation is not the same across the board, there are some vehicle manufacturers which suffer sharper depreciation than others. Here, we explore which car models need GAP insurance the most.

Do I need GAP insurance for my Audi?

Audi cars are one of the most-depreciating manufacturers; your Audi, depending on the model could still lose value faster than many other brands. GAP insurance for Audi cars protects you from depreciation by topping up your insurance payout.

Do you have a new luxury car? Get a GAP insurance quote for your new vehicle.

Do I need GAP insurance for my VW?

Volkswagen cars are also very highly depreciating; you could see a 20-40% reduction in value after five years. GAP insurance for VW cars is useful for topping up your market value settlement, helping cover your car’s depreciation over time.

Do I need GAP insurance for my BMW?

BMW cars are another luxury car model that depreciates quickly. BMW’s depreciate at a similar rate to VW so make sure you have GAP insurance for BMW vehicles to protect your investment from significant depreciation.

Does GAP insurance cover the full value of the car?

GAP insurance aims to cover the shortfall from your motor insurance settlement and the full original cost of the vehicle or the outstanding finance if this is higher. However, there are some circumstances where you could be left to cover some costs.

  • Negative equity – if you have finance carried over from a previous vehicle or other financed items excluding the vehicle itself, ALA can’t cover this. You must settle this amount directly with your finance company.
  • Low motor insurance settlement – if you have an agreed-value auto insurance policy or your insurer makes deductions to your market value settlement, your GAP payout may be lower than expected. ALA will top up your insuer’s market value settlement but cannot cover additional deductions, such as those fr damage which occurred prior to the total loss.

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