Mind The Gap (with Insurance)


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By Cai Bradley
Updated on Tuesday 22 October 2019

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Guaranteed Asset Protection (GAP) insurance is quite the unknown entity amongst most drivers, but it could save you a considerable amount of money should your car be written off during your lease agreement.

What is GAP Insurance and is it Necessary?

The popularity of car financing has sky-rocketed in recent years as an affordable way of driving a brand-new car without having to fork out a huge amount of cash on a down payment.

Despite its many benefits, there are some issues that could cause damaging financial repercussions should you not have the right cover in place.

GAP insurance is one of the most crucial covers you should consider if you are leasing a car as it can save you a serious amount of cash, primarily if your car is written off or stolen.

Here, we explain and review GAP insurance so that you can understand the concept and consequently decide whether it is necessary for your particular situation.

What is GAP Insurance?

GAP insurance essentially covers the difference (or “gap”) between the amount your insurance cover will pay out and the amount remaining on your finance agreement, in the event of a total loss. So, what does that mean?

Cars begin decreasing in value as soon as you leave the garage, whether you buy or lease. This is labelled ‘depreciation’ and its main effects are avoided by car leasing, but all that changes in the case of a total loss – without GAP insurance, at least.

If your car is written off, your insurance will only cover the amount the car is worth at the time of the accident.

A car initially worth £30,000 could be valued at just £18,000 after 12 months; therefore if you write it off after a year of leasing, there could be a total of £12,000 NOT covered by the insurance.

You will have already paid a certain amount of monthly payments – approximately in the area of £4,000 – but even with that deducted from the remaining £12,000, it still leaves an outstanding total of £6,000 owed to the leasing company.

Simply, due to depreciation, that £6,000 left-over would be your responsibility to pay. This is where GAP insurance comes into play, as it covers every penny of that remaining balance for you.

In this case, which is about the average for a leased car, GAP insurance would save you a total of £6,000.

Is GAP Insurance Required?

GAP insurance is not necessarily a legal requirement, but it can turn out to be a great investment should the worst happen while leasing a car.

Some car finance companies are also known to make GAP insurance a requirement because it ensures that they will receive the remaining balance on the lease in sufficient time, without having to put financial pressure on the already shaken-up driver.

Is GAP Insurance Worth it?

So, as it’s not legally required, it’s important that the GAP insurance policy is worth the cost you are expected to pay.

It’s fully possible that you may never need the GAP insurance, but there is always the possibility that you will.

Without GAP insurance, you are risking being hit with heavy costs – often thousands of pounds – following a disastrous crash, for the sake of a simple one-off payment.

Things are always better in hindsight; so you won’t know if you needed GAP insurance until either you write the car off or you finish the lease.

Nevertheless, we feel it is always better to be safe than sorry, especially with thousands of pounds at stake.

If you ever do end up in a situation where you need GAP insurance, you will be unquestionably thankful you took it out.

When Does GAP Insurance Benefit You?

Generally speaking, GAP insurance can benefit you if you owe money to a car finance company. It’s also worth noting that the popular money saving expert, Martin Lewis, agrees with us here.

GAP insurance is beneficial…

  • If your vehicle’s depreciation rate is higher than average

  • If you paid a low-percentage initial payment at the beginning of the lease

  • When balloon payments are expected at the end of your policy

  • If your agreement includes a high level of interest

  • If your loan lasts more than three years

The balloon payments referred to usually occur in Personal Contract Hire (PCP) and Hire Purchase (HP) policies. For more information, contact us today for a GAP insurance quote regarding your PCP and HP leases.

If a loan lasts three or more years, you are likely to be paying a lower amount per month. This is beneficial for some, but you could be left with two or more years’ worth of rent to pay off if your car is written off in the first 12 months.

Cars with high mileage, for example over 15,000 miles annually, depreciate very quickly and can leave you with a hefty bill to pay should a total loss occur.

GAP insurance is undoubtedly beneficial should you write off a car with high mileage, as the amount remaining on your rental agreement is likely to be higher due to the more rapid depreciation. 

GAP Insurance on New and Used Cars

GAP insurance can be applied to any vehicle, but is more useful for those leasing, rather than buying.

As GAP insurance covers the depreciation value of your vehicle, which will inevitably be very low for an older used car, most experts advise against GAP insurance for second-hand cars.

New cars depreciate substantially and quickly, meaning that you will be left to cover a larger difference.  Therefore, it is certainly advisable that you do include GAP cover when leasing a new car.

Why You Should Get GAP Insurance

Car accidents, where the vehicle has been written off, are likely to be unpleasant enough experiences without the burden of a huge bill to pay.

From a financial standpoint, GAP insurance certainly makes sense if you want to cover that risk of having to pay for a car that you are no longer able to use.

We obviously hope that you aren’t ever involved in a total loss and even if you’re not, GAP insurance will always offer peace of mind and reassurance.

Rightly or wrongly, without GAP insurance, you can be sure that you will have to pay the finance company for an unusable car.


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