Is gap insurance worth it?

Gap insurance is the shortened name for an insurance called guaranteed asset protection.

Gap insurance is optional and is not a legal requirement.

You can buy gap insurance for second-hand or used vehicles; however these usually depreciate at a slower value than new cars and therefore any gap between what you pay and the value the insurer will give you is much smaller.

If you originally purchased a new vehicle and have vehicle replacement gap insurance, then this will make sure you receive the difference between the car’s value when new and the settlement figure from the insurer.

If you have a car under personal contract purchase (PCP), then you will need personal contract hire gap insurance. Make sure to check with your gap insurer what will happen to your insurance if you purchase the vehicle at the end of the contract term.

Most car buyers will be offered gap insurance by the car dealership; however, this can often be more expensive than alternatives available directly from insurers or from insurance brokers online. Your car dealership is required by regulation to give you two days to consider if you want to take this product. You can use this time to compare gap insurance cover and prices.

If you buy a new car and your insurer will replace it with a brand-new vehicle while this is less than 12 months old, then you will not want to over-insure yourself during this time. Some gap insurers will allow you to defer your gap insurance for 12 months, others will only let you purchase gap insurance cover before 12 months has expired.

Gap insurance should cover you whether you were at fault or not.

Gap insurers should provide you with a cooling-off period of between 14 and 30 days from your initial sign-up. During this time, you should be able to cancel in full as long as you have not made a claim on the policy during this period. Most gap insurers will accept cancellation at a later date, but you may find they will not refund you the premium and many will charge a cancellation fee. You should check your cancellation rights when you first buy gap insurance.

If you cancel your gap insurance during your cooling-off period, then you should receive a full refund. If you cancel at a later point, then any refund is subject to your gap insurer’s terms and conditions and may come with a cancellation fee.

You should cancel your gap insurance if you sell your car. You may also want to cancel your gap insurance if the amount you owe on car finance is the same or less than the market value of the car.

You can purchase gap insurance usually in 12-month periods, with most policies usually over three years and some gap insurers will have four or five-year policies available.

Gap insurance is usually around £5 to £10 per month. How much you pay will depend on the vehicle and the number of years of cover you require.

Gap insurance is a stand-alone insurance policy and can be operated independently of your car loan.

If you have used finance to buy a car and it is written off, then you will need to continue to make your monthly loan payments. If you fail to make your payments, this will affect your credit score.