New cars lose value fast. GAP insurance fills the gap between your car’s market value and what you paid or owe. Here’s when it makes sense.
For the wider cluster covering cover types, premium drivers, savings strategies, and claims decisions, use the main Car Insurance hub.
How Car Depreciation Creates the Gap
| Age of car | Typical value remaining | Lost value on £30,000 car |
|---|---|---|
| Brand new | 100% | £0 |
| 1 year | 65-85% | £4,500-£10,500 |
| 2 years | 55-70% | £9,000-£13,500 |
| 3 years | 45-60% | £12,000-£16,500 |
| 4 years | 35-50% | £15,000-£19,500 |
If your car is written off after 2 years, your insurer pays market value (£16,500-£21,000). You lose the rest — unless you have GAP insurance.
Types of GAP Insurance
| Type | What it covers | Best for |
|---|---|---|
| Return to Invoice (RTI) | Difference between payout and purchase price | Cash buyers, new cars |
| Finance GAP | Difference between payout and outstanding finance | PCP/HP buyers |
| Vehicle Replacement | Pays enough to buy the same car new | Replacing like-for-like |
| Return to Value | Difference between payout and pre-agreed value | Agreed value protection |
Example — Finance GAP
| Detail | Amount |
|---|---|
| Car purchase price | £30,000 |
| PCP deposit | £5,000 |
| Finance owed after 18 months | £22,000 |
| Car’s market value at 18 months | £18,000 |
| Insurance payout (market value) | £18,000 |
| Shortfall you owe | £4,000 |
| GAP insurance covers | £4,000 |
Without GAP insurance, you’d still owe £4,000 on a car you no longer have.
When GAP Insurance Is Worth It
| Situation | Why you need it |
|---|---|
| New car (0-3 years old) | Fastest depreciation period |
| PCP or HP finance | Could owe more than the car is worth |
| Large finance balance | Bigger potential gap |
| No significant savings | Can’t absorb the loss |
| High-depreciating brands | Some cars lose value faster |
| Low deposit on finance | Larger gap from day one |
When You Don’t Need It
| Situation | Why you can skip it |
|---|---|
| Older/used car (3+ years) | Depreciation has already occurred |
| Car bought outright and cheap | Small potential loss |
| Low finance balance | Gap is minimal |
| Strong savings to cover shortfall | Self-insure the risk |
| Lease/contract hire | Not your car to worry about |
Where to Buy — Dealership vs Standalone
| Source | Typical cost (3 years) | Value |
|---|---|---|
| Car dealership | £300-£800 | Poor — heavily marked up |
| Standalone provider | £100-£300 | Good — same cover, much cheaper |
| Insurer add-on | £100-£250 | Good — convenient if offered |
Standalone Providers to Compare
- ALA Insurance
- Direct Gap
- Gap Insurance UK
- motoreasy
FCA rule: Since September 2015, dealers must inform you of your right to buy GAP insurance elsewhere, and you have a 14-day cooling-off period to cancel and get a full refund if you bought at the dealership.
How to Buy the Right GAP Policy
Step 1 — Choose the Right Type
| If you… | Choose |
|---|---|
| Bought on PCP/HP | Finance GAP |
| Paid cash for a new car | Return to Invoice |
| Want a like-for-like replacement | Vehicle Replacement |
Step 2 — Check the Cover Period
Match the GAP cover to your finance term or intended ownership period:
| Finance term | GAP period to buy |
|---|---|
| 2-year PCP | 2 years minimum |
| 3-year PCP | 3 years |
| 4-year HP | 4 years |
| Cash buy (keep 3 years) | 3 years |
Step 3 — Check the Maximum Payout
Ensure the policy covers enough:
| Car value | Minimum GAP limit needed |
|---|---|
| Up to £20,000 | £5,000-£10,000 |
| £20,000-£40,000 | £10,000-£20,000 |
| Over £40,000 | £20,000+ |
Step 4 — Read the Exclusions
Common exclusions to watch for:
- Pre-existing damage not repaired
- Modifications not declared
- Not keeping up with servicing
- Using the car for commercial purposes
- Deliberate damage
The Cooling-Off Period — Your Safety Net
If you buy GAP at a dealership and later find cheaper cover:
| Timeline | Your right |
|---|---|
| Within 14 days | Cancel for a full refund |
| After 14 days | Pro-rata refund (minus admin fee) |
| After claim | No refund available |
Strategy: If pressured at the dealership, buy it to be covered immediately, then shop around and cancel within 14 days if you find better value.
Related Guides
- Car Insurance Guide — choosing the right car cover
- PCP vs HP vs Lease — car finance options compared
- How to Make an Insurance Claim — step-by-step process