GAP insurance fills a specific gap that standard motor insurance does not cover: the difference between what your insurer pays out if your car is written off, and what you owe on finance or what you originally paid.
For broader car finance guidance, see the Car Finance hub.
Why the Gap Exists
New cars depreciate significantly:
- Average depreciation: approximately 15–35% in year one
- After 3 years: many cars are worth 40–60% of their purchase price
If you took a PCP agreement on a £28,000 car with a small deposit, after 18 months you might owe £22,000 in remaining finance. If the car is written off, your motor insurer pays the current market value — perhaps £18,000. The £4,000 shortfall comes out of your pocket. GAP insurance covers it.
Who Needs GAP Insurance Most
| Situation | GAP insurance need |
|---|---|
| New car on PCP with small deposit | High — most exposure to depreciation gap |
| New car on HP with small deposit | Moderate to high |
| Used car on finance | Moderate — less depreciation shock |
| Car bought outright (cash) | Low — no finance to outpace |
| Large deposit (25%+) | Lower — reduces outstanding finance |
| Company car / lease (PCH) | Usually not needed — you do not own the car |
Dealer GAP Insurance vs Standalone
| Dealer GAP | Standalone GAP | |
|---|---|---|
| Typical price | £200–£500 | £80–£250 |
| When sold | At point of sale | Within 180 days of purchase |
| Cover level | Similar | Similar |
| FCA regulated? | Yes | Yes |
| Recommended action | Get a quote; compare standalone first | Compare before buying dealer policy |
Since the FCA’s 2015 intervention, dealers must give you a 4-day deferral period before you can purchase GAP insurance — this gives you time to compare. Use this time to get standalone quotes.
Types of GAP Insurance Explained
Choosing the wrong type of GAP cover can leave you still short after a claim. The four main types:
Return to Invoice (RTI) Pays the difference between your motor insurance settlement and the original invoice price of the car. Best suited to new cars where the risk is that the market value drops below the price you paid.
Example: You paid £26,000. Car written off after 2 years. Market value payout: £17,000. RTI pays £9,000 (the difference from the invoice price).
Finance GAP Pays the difference between your motor insurance settlement and the outstanding finance balance. Best suited to PCP or HP where you need to clear a specific balance.
Example: Outstanding finance: £19,500. Market value payout: £17,000. Finance GAP pays £2,500.
Vehicle Replacement GAP Pays enough to replace the car with an equivalent new model at current market prices. This is the most comprehensive — and most expensive — type. Useful if new car prices have risen since you bought yours.
Agreed Value GAP A simpler product paying a pre-agreed fixed sum. Less commonly sold now but worth understanding if offered.
For most PCP buyers, Finance GAP or RTI is the appropriate choice. RTI is generally better if you have a larger outstanding balance relative to the car’s current value.
What to Check Before Buying
- Duration: Does the policy cover the full finance term?
- Type: RTI or Finance GAP — which is appropriate for your agreement?
- Exclusions: Pre-existing conditions, mileage limits, age limits on vehicles
- Insolvency protection: If the GAP insurer goes bust, is the claim still honoured?
- Claims process: How straightforward is it?
- Cooling-off period: Most policies have a 14-day cooling-off period
How to Make a GAP Insurance Claim
GAP insurance claims follow your motor insurance claim — you cannot make a GAP claim until your main insurer has settled the total loss:
- Report to your motor insurer first — they assess the vehicle and make a total loss settlement offer
- Accept the motor insurance settlement — do not delay accepting while waiting to decide on GAP
- Notify your GAP insurer — provide the motor insurance settlement letter, outstanding finance statement (from your lender), and original invoice
- GAP insurer pays the shortfall — directly to the finance company in most cases; any remainder (if RTI and you are not financing) goes to you
- Finance agreement is closed — once settled, your obligations under the finance contract are discharged
Keep your original invoice, finance agreement, and GAP policy documents together — you will need all three when making a claim. Claims are generally processed within 14–28 days of submission.
When GAP Insurance Is Not Worth Buying
GAP insurance is not always good value:
- If your car is not depreciating significantly — some cars hold their value unusually well
- If you have a large deposit or substantial equity — the outstanding finance may never exceed the market value
- If you are near the end of your finance agreement — in the final 12 months of a 3-year PCP, the balloon payment often matches the market value; the gap is minimal
- If you are leasing (PCH/BCH) — you do not own the car, so total loss simply ends the lease; a different product (lease protection) may be relevant but GAP is not
Rough guide: if the outstanding finance is within 10–15% of the car’s current market value, the GAP cover you are paying for is very small and premiums may not be justified.
Complaining About a GAP Insurance Sale
If you were sold GAP insurance by a dealer or lender and believe the sale was unsuitable, you have grounds to complain. The FCA has previously found widespread mis-selling of GAP insurance — particularly cases where customers were not given adequate time to compare, were not made aware of cheaper standalone alternatives, or where the cover was unsuitable for their type of finance.
Steps to complain:
- Contact the seller first — raise a formal complaint with the dealership or finance provider who sold the policy. They must acknowledge within 5 working days and resolve within 8 weeks
- Escalate to the Financial Ombudsman — if the complaint is not resolved satisfactorily within 8 weeks, take it to the Financial Ombudsman Service (FOS) at financial-ombudsman.org.uk. The FOS is free to use and its decisions are binding on the firm
- Provide evidence — save any documents showing when and how the GAP insurance was offered, what alternatives were mentioned, and whether you were given the required deferral period
Successful complaints have resulted in full refunds of premiums paid. If you were sold GAP insurance without being informed of the 4-day deferral period (required since FCA intervention in 2015), this is particularly strong grounds for a complaint.