14 December 2011 by Parkers Team

  • All you need to know about GAP insurance
  • Watch out for dodgy dealers selling pointless policies
  • Have you been conned into gap insurance?

When buying a new car it’s likely that the dealer will try to offer you GAP insurance. Those two words alone are confusing enough, but delve deeper and things get even worse. To try and make it all a little easier we’ve put together a complete guide to GAP insurance.

What is GAP insurance?

GAP - or Guaranteed Asset Protection - is a type of insurance often sold alongside finance deals when buying a car. It covers the difference between the value of the car at the time of purchase and the amount of the insurance settlement in the case of a write-off.

Why would I need it?

Imagine you buy a new car on finance for £10,000. After a years' ownership you are involved in an accident and the car is written off. The ‘book' price for the car is now £8,750, so that's the amount your insurance company will pay out. However, what if you bought the car on a finance deal which had more than £8,750 outstanding? You'd lose money. This is what GAP insurance protects against.

There are two types of gap insurance:

  • RTI (return to invoice) insurance pays out the difference between the amount you paid for your car and the amount the insurance company say it's worth now. For example in our situation illustrated above, the GAP insurer would pay out £1,250 (initial value of the car was £10,000 and ‘book' price is £8,750).
  • Finance shortfall insurance ensures that you don't have any finance outstanding on your written-off car after you make a claim. However, it differs from RTI in that it doesn't give you any money back, it only covers outstanding finance.

Watch out for dodgy dealers:

Be aware that people are often mis-sold GAP insurance by greedy or poorly-trained salespeople when they begin a finance scheme.

In a lot of cases GAP insurance can prove a useful addition to a finance agreement as it protects the consumer against losing money because of frugal payouts from insurance companies.

However, it's up to the customer to decide whether he/she actually needs it, and it's up to the salesperson to prove the case for taking out a GAP policy.

Watch out for cases where the salesman just adds it to the finance agreement without even checking whether the customer needs it. A GAP policy is an easy way for salespeople to get extra commission on the sale of a car, so make sure you look into it before signing on the dotted line.

It's also worth mentioning that GAP insurance can be found online and will often be cheaper than buying from a car dealer. Make sure you shop around and try services such as the Parkers GAP insurance facility.

Parkers Top Tip:

To find out if you have been mis-sold GAP insurance, and how you can claim the money back, read our article here.