GAP Insurance, also known as Guaranteed Asset Protection insurance, helps protect motorists who have financed or leased a vehicle against financial losses in specific scenarios. When you buy a new car and still owe money on your old one, GAP Insurance can cover the gap between what you owe on your current loan or lease and the actual cash value of your car if it’s written off.
For example, imagine you bought a brand-new car worth £20,000 but have only made payments totalling £15,000. If you get into an accident that writes off the vehicle, the insurance company will likely pay out based on its depreciated value, say £14,000. This means you would still owe £1,000 to your finance company because of the remaining loan balance and possibly penalties for early repayment. GAP Insurance would cover this difference.
In the UK, while there’s no specific legislation mandating GAP insurance, it is highly recommended by financial experts as a safeguard against unexpected financial burdens. The Financial Conduct Authority (FCA) regulates motor finance products but does not enforce GAP coverage requirements; however, providers must be clear about what their policies do and don't cover.
A practical tip for consumers: Always review your existing car insurance policy to see if it includes any form of GAP protection before purchasing a separate policy. If you decide to buy GAP Insurance, consider opting for optional extras such as Return to Invoice coverage which can help recoup the full purchase price should something happen within the first year or so after buying a new vehicle.
Understanding and securing GAP insurance could save you thousands in unexpected costs if your car is involved in an accident that results in write-off.
How This Relates to the FCA Redress Scheme
The FCA motor finance redress scheme covers 12.1 million agreements with an average compensation of £829 per agreement. The total cost to firms is £9.1 billion. If you had PCP or HP finance between 6 April 2007 and 1 November 2024, you may be eligible. The final deadline to complain is 31 August 2027. You do not need a claims management company.