Even if your car insurance is fully comprehensive, your policy will only cover the cost of replacing it at its current market value – not its original purchase price – if your vehicle is written off or stolen.
Guaranteed asset protection
Your vehicle starts to decrease in value from the moment you buy it, so there is often a big difference between the price you paid for it and its current market value.
This means that you may lose money if your vehicle is declared a total loss by your insurer. Your settlement may be significantly lower than the price you paid for.
Brand new cars can lose their value very fast. Different vehicles depreciate at different rates, but on average, the value of a car purchased today will have lost around 60% of its value after three years.
For example, if you buy a new car for £10,000 today, it may be worth around £4,000 in three years’ time. If your car is stolen or written off after three years, you would get its market value, minus whatever excess applies to the policy, from your insurer. If you borrowed money to buy the car, you might still owe more than what your car is worth and more than your insurer will pay out.
Guaranteed asset protection (GAP) insurance covers the difference between your vehicle's purchase price and its current market value. GAP can be bought in addition to, but is not a substitute for, your main motor insurance policy.
You may wish to take out GAP insurance if:
- you want to make sure that your insurance settlement will cover any outstanding finance you may have
- you are concerned that you would not be able to afford to replace your car on a new-for-old-basis.
GAP insurance is available from a range of sources and it’s important to shop around to make sure the policy you purchase is the most appropriate one for your needs.
GAP policies are only normally available if the vehicle is insured under a fully comprehensive insurance policy. They will come into play once your motor insurer declares your vehicle a total loss due to being involved in an accident or stolen.
Some GAP policies may even cover up to a certain level of excess on your motor insurance policy.
There are a number of different GAP policies available and coverage varies between insurers. For more information see the ABI's guide to making sense of GAP Insurance.