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GAP Insurance Explained

 

 

You just get your new or nearly-new lease vehicle and drive off into the distance looking stylish – you have your sunglasses on and the wind in your hair.  The last thing you think about as you’re about to sing the chorus of Don’t Stop Me Now (because you’re having such a good time) is your policy documents and whether you ticked the box ‘Do you want to add GAP insurance’.

This guide explains what GAP insurance is and why you should consider purchasing it to put your mind at rest should your lease vehicle be written off or stolen.

 

What is GAP Insurance?

If your lease car is declared a total write off, GAP (Guaranteed Asset Protection) insurance pays out the difference between the value of the vehicle at the time of loss and the remaining finance owed on the lease.

You won’t be required to take out a GAP insurance policy by the finance provider of your chosen lease deal. However, it can give you added peace of mind during your agreement if you’re worried about being charged extra for the vehicle in the worst-case scenario.

There are two main types of cover for GAP insurance policies, which are:

• Finance/Contract Hire GAP insurance – the most basic form of cover, which pays the difference between your car insurer’s settlement figure and the outstanding finance due for the lease car.

• Vehicle Replacement GAP insurance – usually the most expensive type of cover. As well as settling your lease car finance, it pays for a replacement vehicle that matches the specification, age
and mileage of your previous model.

Why should you consider GAP insurance?

When leasing a vehicle, GAP insurance can be a good investment and give you peace of mind, particularly if you’re worried about not getting the original value of the vehicle back if it’s written off (damaged beyond repair) by your insurer. Although the chances of your vehicle being written off or being stolen are very slim, it’s worth noting that according to Churchill Insurance, around 384,000 cars are written off each year. In addition, the DVRLA confirmed that just over 74,000 vehicles were stolen in 2020. These are statistics which you should consider when deciding whether to take out
GAP insurance for your leased car.

GAP insurance is particularly worth it if your car or van is on a finance agreement or you have outstanding payments on a personal loan. If the vehicle is unfortunate enough to be a total loss and your vehicle’s value has depreciated, you will probably find there’s a shortfall between how much you receive from the insurance claim and how much you still have to pay off for the vehicle.

This could mean you end up paying finance instalments on a car that’s not even on the road anymore. But the finance company may also demand that you pay off the entire loan amount.

Hopefully, you may never need to make a claim on your insurance for a total loss, but GAP insurance will enable you to get enough compensation to lease or purchase another vehicle.

What is normally included in GAP insurance?

• Financial cover in the event that your lease cover is written off

• The ability to settle your lease finance early without facing hefty charges from the finance provider

• Option of one-off annual payment or 12 monthly direct debit payments to ensure affordability

• Cover for your lease vehicle throughout the entire duration of your agreement

• Cover for other drivers, providing they are a named driver on your fully comprehensive car insurance policy

What isn’t covered with GAP insurance?

• No payouts for vehicles written off if the driver was under the influence of alcohol or drugs

• Cover for vehicles considered a total loss if they were used for fraudulent/illegal activities or wilful negligence (e.g. you left the keys in the ignition)

• If the vehicle was stolen by someone who has access to its keys

• Lease cars that have been modified won’t be covered

• Insurance premiums, warranty charges, road tax and fitted extras/accessories* from the manufacturer

*Some insurance providers may include cover for fitted extras/accessories, so ensure you shop around for the best policy.

How much is GAP insurance?

The cost of GAP insurance is based on different things, such as the value of the leased vehicle, your contract length and the level of cover you wish to have.

GAP insurers have online sites which will allow you to run a free quote within minutes.

How long does GAP insurance last?

You can normally take out GAP insurance for between 1 to 5 years, depending on how long your lease agreement is for. Typically, most GAP insurance cover lasts 3 years as this tends to be one of the most popular leasing contract lengths.