If your bank account has taken a hit to secure the dream car that you’ve had your eye on for decades, you’ve probably heard someone mention GAP insurance. Alarm bells might start ringing in your head. However, it’s probably left you wondering: do I have to have GAP insurance?
Questions and doubts about GAP are more common than you might think. GAP insurance is often a hot topic of conversation alongside large investments because concerns around depreciation are real. The value of a car drops faster than your motivation to wash it in the winter. This article explains whether GAP insurance is required in the UK and highlights situations in which some drivers consider it.
GAP insurance policies, arranged by Insureworks on a non-advised basis and underwritten by specialist insurers, may help cover financial shortfall if your car is written off or stolen. Insureworks Ltd is an appointed representative of Your Company Matters Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA).
Do I have to have GAP insurance in the UK?
The short answer is no. You do not have to have GAP insurance in the United Kingdom. Unlike standard car insurance, GAP is not a legal requirement. However, in some situations, it may provide additional financial protection should the worst happen. This is dependent on policy terms.
If you are in an accident and the car is a write-off, then the standard motor insurer will usually offer the car’s market value at the time of the accident. Check policy terms to ensure this applies. The same situation applies if someone steals the vehicle. This will leave you short compared to what you originally paid or still owe on the finance because of pesky depreciation.
A car’s value will drop quicker than an F1 car moves when the lights go out. In fact, all cars will lose value as soon as the driver puts their foot on the accelerator to leave the forecourt. Depreciation shows no signs of pumping the brakes as the mileage increases. This results in the market value being significantly lower than what you originally paid or still owe on the finance.
GAP may help cover certain types of shortfall. GAP may cover the shortfall between the amount your standard insurer pays out and what you originally paid for the car, or what you still owe on finance. Depending on policy terms, it may reduce the financial shortfall after a write-off or theft. Whilst you do not need GAP insurance, some drivers consider it where there could be a gap between the insurer payout and the amount originally paid.
Car insurance and legal compliance in the UK
You do not have to have GAP insurance to drive on the roads in the United Kingdom. However, you must have standard motor insurance. Third party insurance is the legal minimum.
This will cover you if you have an accident that causes damage or injury to another person, a car, an animal or property. Unlike comprehensive cover, third party insurance will not pay out for costs to repair your own car.
Do I need GAP insurance on a leased vehicle?
Even if you lease your car, GAP insurance is not a requirement. But some drivers consider it. Some lease agreements include terms that ensure you’re still responsible for certain costs even if the vehicle is written off or stolen.
The payout from your main car insurance provider may not cover the outstanding balance on your financial agreement. This could leave you paying for fresh air, whilst not being able to get back on the road. It is important to check your lease contract terms to understand what you may still be liable for if the vehicle is a write-off.
When do drivers consider GAP insurance?
You do not need GAP insurance, but some people consider it in certain situations. It’s helpful to be aware of the fact that cars lose value quickly. Some drop faster than others, so it is important to understand the potential differences between purchase price and market value.
Here are some common factors people often consider when looking into GAP insurance:
| Consideration | Reasoning |
| Are you buying a new car or a second-hand car? | New cars tend to lose value more quickly. Second-hand cars still lose value, but the initial payment is typically less. |
| Will your car lose value quickly? | If your car is expected to lose value quickly in the first few years, the difference between what you paid and its market value could grow faster than expected. |
| Is your finance agreement a long-term deal? | Longer agreements carry more risk. The car’s value may fall faster than the rate at which you can pay off the balance. This could leave a larger shortfall. |
| Did you pay a small deposit? | A small deposit means you have more of the car’s original value on finance. |
| What is the interest rate on your financial agreement? | Higher interest rates increase the total amount you repay over time. This can mean the remaining balance on the finance is higher than the car’s value if it is written off early in the agreement. |
| How much do you have in savings? | Covering the shortfall for a new car may be difficult. GAP insurance may cover some or all of the shortfall, depending on the policy terms and limits. |
GAP insurance may be less relevant in some situations, for example if:
- You’ve bought a relatively cheap second-hand car
- You’ve made a large deposit on the financial agreement, meaning a small percentage of the car’s value is on finance
- You could cover any potential shortfall yourself if the car is written off or stolen
- You have a short-term finance deal, so you’ll be able to pay it off quickly
Now you know whether GAP insurance is required and when it is commonly considered. This information outlines how GAP insurance works and the situations it’s typically used for. InsureWorks can arrange GAP insurance quotes, so you can compare your cover options quicker than peak Max Verstappen. We arrange GAP insurance on a non-advised basis as an appointed representative of Your Company Matters Ltd. Policies are underwritten by a panel of insurers (shown at quote stage).