Guaranteed Asset Protection Policies – how they work.
My suggested way to protect yourself, your money and your car from theft or accident
Marcus Rockey has sold almost 2.4 million pounds worth of car finance products to used car buyers across the UK during the last 24 years. In this article he shares the important information to know before investing in your own GAP Insurance policy.
GAP Cover is overlooked by most car buyers unless they are buying a car on HP (Higher- Purchase), PCP (Personal Contract Purchase) or some other long-term financial arrangement. However, regardless of how you buy your vehicle, if it is declared a total loss by your insurer, car GAP insurance can ensure you don’t lose a potentially substantial amount of money.
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In this article, I disclose all the information you need to know about GAP to help you safeguard your money.
The moment you buy a car its value begins to decrease. It doesn’t matter what make and model you choose, or the age of the vehicle, depreciation starts immediately, although different vehicles do depreciate at different rates. With a new car, in the first few years, depreciation will knock off a good portion of the purchase price, whilst a car bought second hand will lose value at a steadier rate.
If your vehicle is stolen, involved in an accident or damaged by fire or flood, and your insurer determines your vehicle is a write-off, they will compensate you the ‘market value’ of your car. Market value is simply the amount your vehicle is worth at the time of the loss. This will always be less than what you paid for the car thanks to depreciation and, although the insurer should be paying you the retail value of the car, it can sometimes be nearer to the trade value – for this reason ensure you have a Guaranteed Asset Protection policy which does not include a Market Value Clause, which can mean that, even with a GAP insurance policy you end up with a shortfall if you insurer pays less than your car is actually worth.
This is where vehicle GAP Insurance comes in. Essentially, it fills in the ‘gap’ between your insurer’s settlement figure in the event of a total loss (even if it is less than the retail value) and the value of the vehicle when it was purchased.
Buying GAP Insurance
When you purchase your vehicle, you will likely be asked if you want to purchase Guaranteed Asset Protection as well. However, it’s important to shop around because cover varies between providers and policies and you want to make certain you get the policy that best meets your needs.
Car GAP insurance is available through a number of sources, including:
- The vehicle retailer
- Finance and leasing companies
- Insurance companies
- Insurance brokers (such as online comparison websites)
In order to sell GAP Insurance, the insurer must be authorised and regulated by the Financial Conduct Authority (FCA).
My suggested GAP provider is ALA Insurance. I’ve had some dealings with them over the last 5 years and have found them to be trustworthy during the process of making a claim and it is on this basis that I recommend them.
Choosing the Right GAP Insurance Policy for Your Needs
You can purchase GAP Insurance for new or used cars, whether they are owned outright or purchased on finance, or on a lease or contract hire agreement. There are a variety of policies available:
- Back to Invoice Plus
- Vehicle Replacement Plus
- Contract Hire Plus
The vehicle must be insured under a fully comprehensive insurance policy. Your policy will come into play if your primary insurer determines your vehicle is a total loss (cannot be repaired affordably) for whatever reason.
Some GAP policies including those offered by ALA will cover up to £250 of excess on your motor
Back to Invoice Plus
A Back to Invoice Plus policy will pay the difference between your insurer’s market value settlement at the time of the loss and either the amount you first paid for the vehicle or the outstanding finance you owe, whichever is higher at the time. These policies are available for up to 5 years.
Whether you are purchasing a vehicle on a finance plan, it is a good idea to consider purchasing Back to Invoice Plus GAP Insurance. This way, if your vehicle is a total loss, you would not have any outstanding finance as this can be paid from your settlement and any money remaining can be used towards the purchase of a new car.
If you have no finance secured against the car, the entire settlement from the motor insurer and the GAP policy is yours to use as you wish.
Click here for more information
Return to Value or Agreed Value GAP Insurance
Return to Value GAP or Agreed Value Car GAP Insurance is normally sold for vehicles bought privately i.e. not from a dealer.
To make things simpler, as part of their Back to Invoice Plus policy, companies like ALA will cover privately purchased cars. As you don’t have a VAT invoice, the policy will pay the difference between the motor insurer’s settlement at the time of the total loss and the Glass’s Guide retail value of your vehicle at the time the policy was taken out (as opposed to the invoice price).
This means that even if you purchased your vehicle privately ALA can still provide cover under their Back to Invoice Plus GAP Insurance for up to 5 years – click here for product information.
Vehicle Replacement Plus
Vehicle Replacement Plus GAP Insurance will cover the difference between your insurer’s settlement in the event of a total loss and the replacement cost of purchasing a vehicle of the same make/ model (or the equivalent) as you first purchased. This is usually most beneficial for new vehicles but can still be of benefit if you have paid a discounted price on a secondhand car. Although it isn’t always the case for all GAP policies, ALA will pay the shortfall to you directly rather than the dealer, so that you have the flexibility to choose whether you want the same car again or something completely different. It also means you have the cash available to pay off any finance if that’s applicable
GAP Cover can be purchased for up to 5 years.
In the event the same vehicle is not available, the insurer will determine the settlement figure using an equivalent or replacement model.
Contract Hire Plus
This is available for vehicles on a lease, business contract hires or personal contract hire agreement when the vehicle’s title doesn’t transfer to the customer.
If the vehicle is declared a total loss, the finance company will expect to be paid the value of the vehicle at the time of the total loss and the outstanding monthly rental payments for the vehicle – these are normally grouped together and called the Early Termination Charge.
ALA Contract Hire Plus GAP will pay up to 100% of the outstanding rental payments, top up the insurer’s settlement if it is not enough according to the finance company, and can also ensure you receive back the initial rental payment.
The cover is available for up to 5 years.
What to Consider When Choosing GAP Insurance?
Be sure to read through the terms and conditions of the policy carefully. You may also want to ask the following:
- When does the policy take effect and for how long does it last?
- Is there a time limit as to when I can make a claim after a total loss?
- Is anything excluded from the cover?
- Is there a pre-approval or market value clause?
- Can my policy be transferred if I sell this vehicle and purchase a new one?
- Can my policy be cancelled?
- Have the retailer and GAP insurer adopted the ABI’s voluntary good practice guide? This explains how to treat customers fairly and provides instructions on offering easy to understand information and dealing with complaints.
What Does My Motor Insurance Policy Include About Replacing My Vehicle?
Some motor insurance policies will replace your vehicle if it is a total loss. Typically, this is on a new-for-old basis and only applies for one year or two years at the most.
It may include certain conditions, such the mileage at the time of the loss, whether a replacement car can be sourced, how the vehicle was written off and the condition/ age of the vehicle.
It is worth checking the terms and conditions of your insurance, as a new-for-old replacement may not always be appropriate for you (for example if you have finance, to clear) and refusing an offer from your motor insurer to replace your vehicle following a total loss may invalidate your GAP Insurance policy.
Calculating ‘Market Value’ After a Total Loss
Your insurance policy and the motor insurer may come to different conclusions regarding your vehicle’s worth at the time of it being declared a total loss. With some GAP providers, if you accept your motor insurer’s offer first and do not check with your GAP insurer, they have the right to not pay the full difference, leaving you with a shortfall despite having the GAP cover.
However, with ALA they will not reduce your settlement if this happens – they will still cover the shortfall so that you receive your payment without delay and, if they need to (because your insurer’s settlement is too low) they will request your permission to contact your motor insurer to reach an agreement afterwards.
What is Excluded from the Policy?
While cover varies depending on the policy and provider, some common exclusions include:
- Warranty costs
- Applications designed to protect paintwork
- Road fund license or road tax
- Insurance premiums
- Arrears – negative equity from previous finance agreements
- Charges for excess mileage
- Aftermarket modification costs
- Other amounts not included in the invoice
What Are My Responsibilities?
Read the policy carefully and make certain you understand all details, including cancellation charges, exclusions, valuation methods, and instructions regarding filing a claim.
Also, always ensure you always have fully comprehensive motor insurance.
What Are My Rights?
When purchasing GAP Insurance, you are given a ‘cooling off’ period of at least 14 days. This allows you to cancel the policy during that time. If you haven’t made any claims, you will receive a full refund after the cooling off period, they will offer a proportionate refund, subject to a £35.00 admin fee.
Filing a Complaint
If you have any issues regarding your Car GAP insurance policy, first, contact your insurance provider. If you are unsatisfied with the results, contact the Financial Ombudsman Service (FOS), an official independent expert in settling disputes between businesses and consumers. For customers, it is a free service. While rulings are not binding on customers, financial service firms must legally follow their rulings.
You can contact the FOS at:
Getting Additional Information
For details of member insurance companies:
Filing a GAP Insurance Claim
Once you have spoken to your motor insurer, you can contact your Guaranteed Asset Protection provider at the earliest possible opportunity – if everything is being processed at a similar time by your motor insurer and your GAP insurer then it prevents any delay in receiving the settlement.
Your Policy will provide information on time limits for making a claim.
Click here for the ALA website.
Check out my popular finance options articles:
The Used Car Guy
What is GAP insurance and what does it cover?
GAP insurance is a policy bought in addition to the motor insurance policy you are required to have by law. It provides cover in the event your car is a total loss and does this by covering the depreciation in the value of your car. There are a number of specific types of GAP insurance, and you can purchase cover whether you own your car outright, if it is on finance, or is on a lease, so ensure you select the one which is right for you and your circumstances.
As a general example, you buy a car for £12,000 on a finance agreement and after 2 years have to report an accident with your car insurance provider who deems your vehicle to be a total loss. They tell you that the value of your car is £6,478. However, your car finance settlement figure is £9,312. Without GAP cover you are liable to pay £2,834 to settle your agreement. With a Back to Invoice GAP policy, you will receive an additional payment of £5,522, so that you get back the original invoice price of the car. This ensures you can cover the amount outstanding on the finance and also leave you with £2,688.
How much is GAP insurance?
Dealers and finance providers tend to charge very high amounts for GAP insurance, with premiums ranging anywhere from £299 up to £700. GAP insurance premiums should never be added to a vehicle finance agreement but monthly payment plans are usually available.
Most people are becoming more aware of alternatives to paying expensive dealer prices for GAP, but still with the same (or sometimes a better) level of cover and the peace of mind that brings.
With ALA the price of a three-year policy starts at £77.00. This can be paid as a one-off amount on a credit or debit card, or across the first 10 months of your policy (however there is a surcharge for this payment option)
What does GAP insurance cover?
A payment shall be issued if your vehicle is either stolen, written off after a road collision or damaged by flood water or fire.
Your insurer will pay you a market value settlement and the Car GAP Insurance policy will cover the shortfall, whether that is up to the finance balance, the invoice price of the car or the replacement cost of a vehicle matching the original, depending on which type of policy you have and your circumstances at the time.