Buying GAP Insurance: Your Essential Guide

You can buy GAP insurance from an online insurer or from a dealership, but there are certain rules about when dealers can sell you a policy. Depending on the policy you choose, you may also need to get cover within a number of days of buying your car.

Rhiannon Philps Published on 10 February 2021.
Buying GAP Insurance: Your Essential Guide

GAP insurance is useful protection to have if your car is written off or stolen and your car insurance payout doesn’t cover the cost of a new car or your outstanding finance. But knowing how, when and where to buy cover can be confusing.

>> MORE: What is GAP insurance?

If you have decided that you need GAP insurance, there are still several things to consider, such as whether to get it from a car dealership or online.

Our guide aims to help clear up any questions you may have about buying GAP insurance, as well as how much it could cost.

Can I get GAP insurance on any car?

You can get GAP insurance for both new and used cars bought from dealerships or private sellers. However, all GAP insurance policies will have age and mileage restrictions that your car must meet to be eligible for cover.

The exact restrictions will vary between types of policies and providers, but often they will set an age limit for your car of around seven to ten years.

This is because, as vehicles get older, the rate of depreciation slows. After several years, a car’s value won’t drop so significantly so there would be little point in purchasing GAP insurance.

Some GAP insurance policies will also have their own specific requirements, so you will have to make sure you choose the right type of cover for your car and circumstances.

For example, used cars and cars bought from private sellers may not qualify for Return to Invoice or Vehicle Replacement policies.

>> MORE: Types of GAP insurance

Where can I buy GAP insurance?

You can buy GAP insurance from the dealership that you bought your new car from or online as a separate policy, whether that’s from an insurer directly or through a financial comparison site. Some car finance providers may also offer GAP insurance as an optional extra.

While it can be convenient to get GAP insurance from the dealer when you buy your car, you don’t have to buy a policy from there.

Other online GAP insurance providers may offer more suitable and more affordable cover for your situation, especially as dealerships often won’t be the cheapest place to buy a policy from.

FCA rules on selling GAP insurance

If you are considering getting your GAP insurance from a car dealer you should be aware that there are some rules that the dealership must obey.

These rules were introduced by the Financial Conduct Authority (FCA) in 2015 because of concerns that customers at car dealers were overpaying for GAP insurance, without really knowing what it was or that they could buy it elsewhere.

Dealers now have to give customers full and transparent information about GAP insurance before selling a policy. Information they have to make clear to you includes the total cost of the policy, the length of the cover, its features and exclusions, that cover is optional and that it can be purchased elsewhere.

Also, dealers can no longer sell GAP insurance on the same day that you buy a car from them. There must be a deferral period of at least two days after the dealer first tells you about the policy before you can finalise the purchase.

However, if after one day the customer wants to waive the deferral period and confirms they want to buy the GAP insurance, then they can do so.

These rules are intended to make customers feel less pressured into taking out GAP insurance from a dealer. It gives them some time to research and decide if they need it, and also to shop around and compare other policies and prices online to see if there’s cheaper cover that they could take out instead.

>> COMPARE: GAP insurance

Can I buy GAP insurance at any time?

The type of policy you want will determine when you can buy GAP insurance. If you opt for Return to Invoice or Vehicle Replacement GAP insurance, you will need to buy it within a certain number of days of purchasing your car, often 180 days.

Some providers will allow you to buy GAP insurance within this period and defer the start date for up to one year, if you have new car replacement cover with your car insurance for example.

But you can still buy GAP insurance a year or more after your car purchase. You should be able to buy cover with Return to Value or Finance GAP insurance at any time, as long as your car meets the provider’s age and mileage requirements.

Remember, if you choose to get your GAP insurance from a car dealer, they must give you at least two days between telling you the policy information and completing the sale, unless you choose to waive this period.

How much is GAP insurance?

The cost of GAP insurance depends on the value of your car, the type of policy you choose, the length of your policy, where you buy it from and whether you pay for your cover upfront or in instalments. Paying in instalments is likely to cost you more overall.

In most cases, Vehicle Replacement and Return to Invoice GAP policies will be more expensive than Return to Value or Vehicle Finance as they provide greater protection.

Also, policies purchased through car dealerships can often be more costly than buying a standalone policy from an independent provider.

FCA analysis of the GAP insurance market showed that the average cost of GAP insurance in 2016-17 was £387 if you bought it as an add-on from a dealer, compared to £162 if you bought it as a standalone policy.

While these figures can vary widely depending on your circumstances, you are likely to find you will pay more for GAP insurance at a car dealer just because of its convenience.

How long does GAP insurance last?

The length of a GAP insurance policy depends on the type of cover you buy and the age of your car, as well as the provider that you bought it from.

Most GAP insurance policies can last for up to 3-5 years, although some providers may offer longer terms. You can choose the length of cover that best suits your needs.

What is a maximum claim limit on GAP insurance?

When you buy GAP insurance, you will have to choose a claim limit. This is the maximum amount that you can receive from your GAP insurer if you make a claim.

For example, if you chose a claim limit of just £5,000, but the shortfall between your car insurance payout and the amount you paid for your car was higher, the GAP insurer would still only pay you £5,000.

The claim limit can affect the cost of the policy, so aim to select a level that will meet your needs but isn’t so high that you’d be paying for unnecessary cover.

Details on claim limits will vary between providers, with some offering higher amounts than others.

Ready to buy GAP insurance

Hopefully this guide has answered any questions you may have had about buying GAP insurance, so you now feel more confident about selecting and purchasing a policy.

If you want to search for suitable cover online, you can use our GAP insurance comparison table to get started.

Image source: Getty Images

About the author:

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more
