What is GAP insurance?

Published: 14 November 2023

You might have heard the term ‘GAP insurance’ and wondered what it meant. In this article we'll take a look at what GAP insurance and answer the key questions you might have.

In basic terms, GAP insurance is an additional policy that supplements what your ‘normal’ car insurance policy will pay you if your car is stolen or written off after a collision or other damage. It covers the gap between what your regular policy will pay and the amount you originally paid for the car or, if you’re in negative equity, still owe through a car finance agreement.

When you buy a car, either outright or through a finance agreement, its value generally decreases over time due to everyday wear and tear and increased mileage. This process is known as depreciation. In other words, if you buy a car for £20,000, after two years it could be worth £15,000. 

If your car is written off after an accident or is stolen, a regular car insurance policy will pay you the car’s current market value rather than what you first paid for it. So in our example, you’d only get £15,000 to buy a replacement rather than the £20,000 you initially paid. 

This is where GAP insurance comes in – it bridges the gap between the current market value of your car and either the amount you originally paid for it or the amount you still owe in payments for a finance agreement.

The cost of GAP insurance varies depending on your car, the length of coverage and the provider but on average you can expect to pay between £150 and £500 for a three-year policy.

GAP insurance is available for both new and used cars. Traditionally, GAP insurance was considered more beneficial to people buying a brand-new car because new cars  tend to depreciate at a faster pace. However, the significant increases in used-car prices over recent years mean that GAP insurance may also be beneficial to buyers of used cars.

There are several types of GAP insurance policies you can choose from. Here are three of the most common:

Return-to-invoice (RTI) GAP insurance

This pays you the difference between your ‘normal’ car insurance payout and the amount you originally paid for the car or what you still owe to a finance provider.

Vehicle replacement GAP insurance

This pays you the difference between your insurer’s payout and, depending on whether you first bought it new or used, either the cost of buying the same car new today or the amount you had paid for it used.

Finance/lease GAP insurance 

If you lease your car (which means you don’t own it) and it’s written off or stolen, you could be left with a shortfall because you’ll still owe money to the lease company for a car you no longer have. 

Finance or lease GAP insurance pays any outstanding payments you still owe to a car finance or car lease provider. If you’re in negative equity – meaning that if the amount you still owe your lender is more than the value of your car, finance/lease GAP insurance will cover the difference. 

GAP insurance doesn’t cover every scenario. For example:  

• It will only pay you if your car is written off or stolen

• It will only pay you if your primary insurance policy is fully comprehensive

• It won’t cover any modifications you’ve made to the car 

• It won’t cover your additional costs to get a new car on the road, such as road tax

• It won’t cover any add-ons you have paid for, such as a dealer warranty

• It’s usually only available for cars that are less than 10 years old

• Most GAP insurance policies will also have exclusions based on a car’s value and mileage

Most GAP insurance policies last from two to five years – although you’ll need to check the terms and conditions because policies vary. Because most standard insurance policies will pay to replace a brand-new car that’s stolen or written off within the first 12 months of it being registered, you can defer a GAP insurance policy to start after this period.

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GAP insurance could provide you with reassurance that, if your car is written off, you have adequate financial protection in place.

You bought your car on finance

If your car is written off or stolen while you are part-way through paying for it on a finance agreement, the amount your main car insurance pays out could be less than the amount you still owe on your agreement. GAP insurance can make up that shortfall and save you from having to continue to pay for a car you no longer have.

Having a brand-new car is important to you

If your brand-new car is written off or stolen and you want to replace it with another brand-new one, GAP insurance will cover the difference between what your insurer will pay out and what the car originally cost you. For example, if you paid £20,000 and your insurer will pay you £12,000 (the car’s current market value), a GAP insurance policy will pay you the missing £8,000.

You’re happy with an older car

If your car is stolen or written off, your insurer should pay out enough for you to buy a like-for-like replacement. This means you’ll end up with a car of the same (or similar) age and because of depreciation, it’s not likely to still be worth what you’d paid for the original car. 

Your car is less than a year old

If you buy a brand-new car, your car insurance policy will usually include ‘new car replacement’ for the first 12 months. So if you have a fully comprehensive policy and your car is stolen or written off in the first year, you should get an equivalent brand-new one as a replacement and won’t benefit from a GAP policy. 

Cazoo GAP insurance is available on all petrol, diesel, electric and hybrid Cazoo cars and has a claim limit of up to £50,000*. You can choose cover for either 36 or 48 months.

There are lots of used cars to choose from at Cazoo. Simply use the search function to find one you love then buy or finance it online. We're constantly updating and adding to our stock. If you can't find the right one today, it’s easy to set up a stock alert to be the first to know when we have cars that match your needs.

*Cars with a value of more than £50,000 can be covered but the claim limit is capped at £50,000.