What Is Gap Insurance And Do I Need It?

  • By Michaela Crawford
  • 6 min read

Considering gap insurance for your leased vehicle but not sure what it is or if you need it? Here's everything you need to know.

An Audi e-Tron

A GAP insurance policy will cover the difference between your insurance payment and the market value of your car, should the car be stolen or written off. This means that you won’t need to pay for any costs if your insurance’s payout doesn’t cover the entire finance, which with leasing would be the remaining finance owed on the lease. You shouldn't be required to get GAP insurance by the funder through our leasing partners, however, for your own peace of mind, it may be something you wish to consider.

How Does GAP Insurance Work?

To explain how GAP insurance works, simply put, if your leased vehicle has been written off, stolen or been in an accident, the GAP insurance pays the shortfall between the vehicle’s market value and the remaining amount of the total cost of the lease left to pay. The market value is the expected price if you were to sell your vehicle at that time. This is optional and your leasing provider won’t require you to take this out, and if you decide it is something you would like then you will need to organise this yourself.

If you are needing to claim your GAP insurance, then you will need to wait for your car insurance provider to offer their settlement first. You will then need to speak directly with your GAP insurance provider before accepting any insurance settlement. It’s best to check any details from the GAP insurance provider such as any excess or time limits for making a claim.

Benefits Of GAP Insurance

There are many benefits to taking out GAP insurance when leasing. Here are some of the main perks:

Financial Protection

When asking yourself ‘Do I need GAP insurance?’, the biggest benefit and motivator to do so would be the financial protection you have in the event that your car is stolen, in an accident or written off. This will give you peace of mind that if any unfortunate circumstance arises, such as those mentioned, you won’t be lumped with a big payment.

Payment of the ‘Gap’

GAP insurance will pay the shortfall if your insurance does not cover the entire finance that will allow you to settle your lease agreement if your car is stolen or written off.

Useful for Car Leasing

If your lease car is written off or stolen, the insurance company will only pay out on its market value, however, this is a lot less than what the car is worth to your leasing provider. You will still need to pay the leasing company the contract agreement, and the insurance company won’t cover all of this. So, if you opt for GAP insurance with your car lease agreement, you will be covered to pay the car back fully without paying the big settlement fee.

Types Of GAP Insurance

There are a few types of GAP insurance, and which type you get will depend on a few factors including when and how you bought the car, where you have bought it and if it is used or new.

Back to Invoice GAP Insurance

This GAP insurance policy will pay the difference between the original purchasing price and the payout that your insurance provider agrees, and potentially any additional finance. This GAP insurance is for cars that have been bought from a dealer in the last six months.

Agreed Value GAP Insurance

This GAP insurance is usually offered for cars that were bought privately or from a dealer after the back to invoice point of six months, usually aimed at used cars. This will cover the difference between the market value of the vehicle when it was written off and the value of the vehicle when the policy started.

Vehicle Replacement Plus GAP Insurance

This GAP insurance cover aims to protect you if the cost of any replacement cars increase since the day you took delivery. This GAP insurance will give you a payout that matches the difference between the cost to replace the vehicle itself and the market value paid by the insurer.

Contract Hire GAP Insurance

This is the GAP insurance for lease cars that you don’t own yourself, so this will be the type used for any lease deals through LeaseLoco. In this instance, rather than covering the car value, it is the outstanding monthly payments and shortfall from the insurance provider’s payout in the market value. In some instances, this will protect the upfront payment you may pay at the beginning of the lease deal.

How Is GAP Insurance Calculated?

This may be best explained through an example.

You take out a lease for a car for 4 years, which is valued at £25,000. Let’s say that after 3 years, your lease car is valued at £12,000 due to the depreciation. Your lease was £300 a month, and you still have £3,600 left to pay for the lease.

The insurance company will pay £12,000 for the loss of the vehicle.

The funder for your lease agreement will give you a figure of £15,600 to clear the finance owed for the car’s value at the time plus the outstanding payments.

This means that there is a £3,600 GAP, which is the amount that your GAP insurance will cover.

What Happens If You Don't Have GAP Insurance?

Referring to the above example, you will need to pay the ‘GAP’ amount if your car is written off or stolen.

How Much Does GAP Insurance Cost?

The cost of GAP insurance will depend on the car that you are getting and what its value is and how long your lease term is. GAP insurance policies will usually range from £100 - £300 for multi-year coverage. Some tools will give you a quote for the cost of your GAP insurance, and often these tools can also display what the potential shortfall would be if you don’t have the GAP insurance.

GAP Insurance Eligibility

There are a few vehicle requirements worth considering in order to be able to claim GAP insurance.

The standard vehicle eligibility for GAP insurance:

  • Vehicles up to £125,000 invoice price
  • Vehicles up to 3.5 tonnes
  • Vehicles 6 years old or less

There are also a number of exclusions including:

  • Taxi vehicles, driving school vehicles, buses
  • Vehicles used for speed testing or racing
  • Left-hand drive vehicles
  • Vehicles that don’t meet UK or EC approval
  • A vehicle that was written off when the driver was under the influence or either drugs or alcohol
  • Vehicles that are not insured by a comprehensive UK insurance company
  • Vehicles that were stolen by someone who had access to keys
  • Vehicles that were changed in any way from the manufacturer’s spec

If you’ve read all about GAP insurance with car leasing, and are now looking for your perfect car lease deal, take a look at the millions of car lease deals available at LeaseLoco to find the perfect deal for you. Our goal is to make it super quick and easy for you to secure a great lease deal with only a few clicks by helping you to make a free enquiry with our leasing partners – whether you are looking for a brand new car or van!

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