Understanding GAP Insurance: What It Covers and How the Claims Process Works

Buying a car is a significant financial commitment, and while most drivers understand the importance of motor insurance, fewer are familiar with GAP insurance. If your vehicle is written off or stolen and not recovered, GAP insurance can help protect you from a potentially costly financial shortfall.

This guide explains what GAP insurance is, what it covers, how the claims process works, and what could happen if you don't have it when your car is declared a total loss.

What Is GAP Insurance?

GAP stands for Guaranteed Asset Protection. It is an optional insurance policy designed to cover the difference between what your standard motor insurer pays out for a written-off vehicle and either:

• The amount you originally paid for the car.

• The outstanding balance on a finance agreement.

• The cost of replacing the vehicle with an equivalent new model.

The type of GAP insurance you buy determines exactly what amount is covered. You can choose between Return to Invoice or Vehicle Replacement GAP insurance through MoneyMaxim.

The reason GAP insurance exists is that cars typically depreciate very quickly. A new vehicle can lose a significant portion of its value within the first few years of ownership. While your comprehensive motor insurance pays out the vehicle's current market value at the time of the loss, that amount may be substantially less than what you paid for it.

For example, if you bought a car for £30,000 and three years later it is written off, your motor insurer may value it at only £18,000. This leaves you with a £12,000 shortfall (the gap between what you paid for the car and what insurer has paid out after depreciation).

GAP’s aim is to restore you to the original position you were in when you bought the vehicle by covering the difference.

How Does the GAP Insurance Claims Process Work?

Fortunately, the process is usually straightforward.

Step 1: Notify Your Motor Insurer

Following an accident or theft, your first point of contact should always be your standard motor insurance provider. They will investigate the claim and determine whether the vehicle is repairable or a total loss.

As soon as you have an indication it is likely to be written off, it is sensible to inform your GAP insurer. Often, your GAP insurance provider will be able to provide you with a valuation for you to compare your insurer’ offer against.

Step 2: Receive a Total Loss Settlement

If the vehicle is declared a write-off, the motor insurer will calculate its current market value and offer a settlement payment.

At this stage, it's important to review the valuation carefully and make sure you are satisfied with the amount offered. Use the GAP insurer’s valuation to inform this, if they can provide you with one.

Do not accept a settlement figure from your motor insurer without speaking to your GAP provider first.

Step 3: Submit a GAP Insurance Claim to your Provider

Once the total loss has been confirmed and you've received the settlement figure from your motor insurer, you can begin your GAP insurance claim.

Most providers will ask for:

• The motor insurer's settlement confirmation.

• Vehicle purchase documents.

• Finance agreement details (if applicable).

• Proof of ownership.

• Claim forms and supporting information.

Step 4: Assessment of the Claim

The GAP insurer will compare:

• The amount paid by your motor insurer.

• The relevant insured value under the GAP policy.

• Any outstanding finance balance, where applicable.

They will verify that the claim meets the policy terms and conditions.

Step 5: GAP Settlement Is Paid

Once approved, the GAP insurer pays the difference covered by the policy.

The payment may be made:

• Directly to a finance company if money is still owed.

• To you if there is no outstanding finance.

• Partly to a lender and partly to you, depending on the circumstances.

The result is that you are financially closer to the position you were in before the loss occurred.

Here is an Example

Imagine you purchase a new car for £35,000 using finance.

Three years later:

• The car is involved in a serious accident.

• It is declared a total loss.

• Your motor insurer values the car at £21,000.

• You still owe £26,000 on the finance agreement.

Without GAP insurance, you would receive £21,000 from your insurer but still owe the finance company £5,000.

With GAP Insurance, the £5,000 shortfall could be covered, allowing the finance agreement to be cleared without additional financial strain.

For many motorists, especially those buying new cars on finance, GAP insurance provides valuable peace of mind and an extra layer of financial protection when the unexpected happens.

Get a quote for GAP insurance with MoneyMaxim