What is GAP insurance?

Car driving on a snowy road

It’s commonly known that cars depreciate a lot in their first three years but most people don’t know just how fast they actually lose their value.

As soon as you drive your brand new car off the garage forecourt it has already lost a third of it’s value. By the end of the first year it’s 40% and at the end of three years it’s 60%. It is for this very reason that some people consider purchasing GAP insurance when they invest in a new car. 

Some cars will hold their value better than others. For example a Ferrari 458 is one of the best cars for not depreciating as quickly in the first three years. Brand new it will set you back £172,130 and after three years it will still be valued around £109,800.

What is GAP Insurance? 

Guarantee Asset Protection Insurance is commonly sold by the car dealers themselves and is popular among new car owners. With your standard car insurance, if your car is written off or stolen your insurance company will pay you for the current value of your car. Obviously with the car depreciating so much in value the chances are that they will be paying you a lot less than you originally paid for the car. 

Example – A Peugeot ION costs £26,160 and at the end of three years it is valued at £4,950. That is quite a big difference and a lot of money to lose. 

When you have GAP insurance it bridges that gap in between the two amounts. Simply put they will pay you the difference between what you paid for the car and the amount that your insurers are willing to pay you. 

Can you only get GAP insurance on brand new cars?

Technically you can obtain GAP insurance whether you are buying a brand new car or a used car however it is more useful for new cars as they depreciate so quickly. 

What determines how much my new car will depreciate?

Several factors determine how much value your new car will lose in those first few years. 

  • The model of the car
  • How old the car is
  • How many miles it has done

Some cars will hold their value better than others. For example a Ferrari 458 is one of the best cars for not depreciating as quickly in the first three years. Brand new it will set you back £172,130 and after three years it will still be valued around £109,800. 

Are there any stipulations?

As with most things in life there is some fine print. Before taking out any GAP insurance you should always double check to ensure that it is the best insurance for you. 

  • GAP insurance will only pay out if you have comprehensive insurance. Unfortunately if you have third party or third party-fire & theft, GAP insurance will not be beneficial.
  • GAP insurance will only pay out in the event that your car is written off by your insurance company or if it is stolen. 
  • GAP insurance will not cover the cost of extras such as alloy wheels or spoilers. 

Is GAP insurance worth it?

The answer to this will be different for everyone and very much depends on whether you mind how much your car will depreciate with each passing year. With comprehensive insurance your insurers should pay for a replacement car that was the same age and in the same condition as your original car was before the damage so although having GAP insurance is a nice buffer to have, especially if you have just paid out thousands of pounds for a brand new car, it isn’t essential and is another monthly expense to add to your outgoings. 

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