How long does gap insurance last?

Like all insurances, you may not be too surprised to learn that GAP Insurance may not always settle. All products have terms and conditions to meet, in order for a claim to be eligible and paid. 

Here we provide the Top 10 reasons why your GAP Insurance policy will not pay out. 

1. Your main motor insurer does not pay out

The number one reason why a GAP Insurance policy does not pay out. For a GAP policy to work your main motor insurer must cover the incident you are claiming for, and pay out the market value for the vehicle. The GAP Insurance can then top up this settlement. 

If the motor insurer does not pay out then you cannot claim on the GAP. 

Examples of when your motor insurer may not pay out would include where you have been negligent in leaving the keys for vehicle unguarded. Other examples would include drink driving or using the vehicle for excluded uses like courier or taxi use. 

Another example would be where the vehicle suffers a catastrophic mechanical failure, like an engine or gearbox blow up. Your motor insurance is unlikely to cover this (unless it happened because of a flood perhaps), even if the vehicle is not economic to repair. 

2. You do not have an 'insurable risk' on the vehicle

This means that you have taken the GAP policy out in your name but you have no potential of a financial loss if the vehicle is written off. 

An example of this would be where you take a GAP policy in your name, but the vehicle ownership and finance agreement is in someone else's name. If the vehicle is written off then you cannot claim for a loss as the vehicle is not in your name. 

You must have an insurable risk in the vehicle to be valid to take a GAP Insurance policy for it. 

For more GAP Insurance questions please click to go to our COMPLETE Guide

3. The vehicle is being used for certain commercial activities*

Most GAP Insurance products do not cover some commercial activities with standard cover. This may even be the case when your motor insurer does cover you.

One area of commercial use often excluded from standard cover is 'hire and reward'. This can include taxis, private hire, courier, and chauffeur work.

Other areas of commercial work often not covered would be tuition or driving school vehicles. 

*Total Loss Gap does not currently cover hire & reward, or driving school vehicles. However, we do have products available with our other brands, including EasyGap.co.uk. 

4. You have stopped paying for the policy

You may have elected to pay for the GAP cover on a monthly basis, or through a credit agreement. If you stop paying this then your cover could end automatically. 

5. You sell the vehicle or change owner

If you sell your vehicle then the GAP cover normally ceases automatically. This can also be the case if you change the ownership of the vehicle on the V5 document between family members. For example, if a father buys the vehicle and then transfers the vehicle to one of his children, the original purchase invoice for the vehicle is still in the father's name. The fact that the vehicle has changed keepers to his son or daughter could then prevent him from making a GAP claim. 

6. You have already made a claim on the GAP policy

GAP Insurance is very much a 'one-time-only' type of cover. You can only claim on it once when the vehicle is written off. If you successfully claim for the vehicle then that is the end of the policy. This is even the case if you have some time left on the cover. 

If you replace the vehicle you have claimed for then you will need a new GAP policy for this vehicle.

7. There is no 'GAP' to fill

Remember GAP cover is designed to top up your motor insurers settlement back to perhaps the price you paid for the vehicle, or to clear a finance or lease settlement. If there is no 'gap' between the motor insurers settlement and the original price you paid (if that is the GAP you have purchased), then you cover has no difference to make up. 

Another example where there may be no GAP is if your motor insurer replaces the vehicle for you. Perhaps your vehicle was brand new, and your insurer has provided another brand new replacement for you. 

This may not happen often, but if it does then you have no loss to cover. Normally, you will see your GAP cover simply transferred to your new vehicle free of charge.

8. Your GAP Insurance policy has expired

All GAP products have a period of cover. When the policy comes to an end you cannot normally renew or get new cover as you have owned the vehicle too long at this point. Asking how long does Gap Insurance last is a good idea when you buy your cover. If you need longer then you may have options for this.

The decision of how long you want GAP cover on your vehicle is one you must make at the outset. 

9. You are not fully comprehensively insured

Most GAP policies will require that you are fully comprehensively insured for the full policy term. If you are only third party covered then your motor insurer would not pay out for a fault claim, or a theft. If your main motor insurer does not payout then you cannot claim on the GAP cover. 

10. Your vehicle does not appear in Glasses Guide

You may have heard of Glasses Guide. It is widely used by insurers and motor dealers to work out the value of a vehicle. If your vehicle is not listed in Glasses Guide then many GAP products will not cover you. 

This is simply because GAP is designed to cover from the 'write off' value of the vehicle. If there are not guide prices to work out the write off value then the GAP Insurance underwriters cannot work out what they should be covering. 

Imported vehicles and modified vehicles (vans turned into motorhomes aftermarket) are usually excluded from cover, therefore. 

This is not an exhaustive list, and there will be other reasons why your GAP cover will not settle if you make a claim. However, if you do your research at the outset you will find that GAP cover is quite simple and straightforward. If you have any questions or queries please do not hesitate to contact us and we will be more than happy to answer your questions.

• Gap insurance pays out when the amount left on your car loan or lease is greater than the value of your vehicle at the time it’s declared a total loss.

• Gap coverage is worth it only as long as you are leasing a car or if you owe more on a loan than your car is worth.

• You don’t need gap insurance if you don’t have a car loan or lease.

• You won’t need gap insurance forever. Drop gap insurance once your car loan is less than the value of your vehicle.

Gap insurance, or guaranteed asset protection, is an optional coverage that pays the difference between what your vehicle is worth and how much you owe on your car at the time it’s stolen or totaled. This coverage supplements a comprehensive or collision car insurance payout, which can only be as high as your car’s value.

At the time of an incident, you’re responsible for paying off your car loan — even if your insurance payout isn’t enough to do so. This is where gap insurance can come in handy.

If you don’t have a car loan or a lease, gap insurance isn’t for you.

When you buy or lease a new car, lenders typically require that you also purchase collision and comprehensive coverage. Collision insurance pays for damage to your vehicle if you’re in an accident with another vehicle or if you hit an object like a pole or a tree, while comprehensive insurance can cover things like fire or vehicle theft.

Comprehensive and collision insurance pay only what a car is worth at the time of a theft or accident. When you owe more on your car loan or lease than that, gap insurance comes to the rescue.

In most cases, gap insurance does not cover your comprehensive or collision deductible. Your deductible is the amount your insurance subtracts from a claim payout.

Drop gap coverage when your car loan is less than the current value of your car. Online pricing guides like Edmunds or Kelley Blue Book can give you an idea of how much your car is worth. Insurers might not drop it automatically, so you may need to remove it.

» MORE: Why rising car prices make gap insurance worth a look

Let’s say at the time your new car is stolen, it’s worth $25,000 and you have a $30,000 loan. You have comprehensive insurance, which will pay for the value of your car at the time of theft, except for your $500 insurance deductible. So the insurance company pays $24,500 to your lender, but $5,500 is still due on your loan. You will pay $500 of this amount to cover your deductible.

Gap insurance is designed to pay that final $5,000 so you don’t owe money on a totaled car.

Without gap insurance, you’ll have to cover the balance on your loan as well as your insurance deductible.

Below is that example in a nutshell.

» MORE: What does car insurance cover?

A lot of people don’t need gap insurance. If you don’t lease or have a loan, or if your loan is paid down below the value of your car, you don’t need this coverage.

Ultimately, if you do have a lease or newer loan, you want to think about whether you can afford to pay the difference between its balance and the value of your car. If you can’t, or don’t want to deal with that situation in an emergency, you may benefit from gap coverage.

You can generally only buy gap insurance within three years of buying a new car. Although insurers’ guidelines vary, a company may require one or both of the following:

• Your car is no more than two to three years old.

• You are the original owner of the vehicle.

To avoid paying interest on it, NerdWallet recommends buying gap coverage through your auto insurer rather than from a dealership. Not all car insurance companies provide gap coverage (or an equivalent) or offer it in all states, so you may need to switch companies.

There are three main ways to buy gap insurance:

• From your auto insurer, as part of your regular insurance payment.

• From a company that sells gap insurance only. Stand-alone gap insurance is typically sold online through a one-time purchase from a website such as Gap Direct.

• Through the dealership or lender, rolled into your loan payments. With this arrangement, you’re paying interest on the cost of your gap insurance over the life of the loan, making the coverage far more expensive.

If you buy through your dealership or lender:

• If you have a car loan, first check your contract to see if you’re required to have gap insurance. Although some lenders may require the coverage, it’s rare. However, your lender will generally require you to buy comprehensive and collision coverage.

• A dealer may automatically include gap insurance if you lease your car, so make sure to check your lease agreement.

• If you already bought gap insurance from your dealer and want to buy it from your insurer, you may be able to remove it from your contract. Make sure you have coverage during the transition if you switch providers.

Some of the largest insurance companies that offer stand-alone gap insurance as add-ons to car insurance policies are:

» MORE: Get the cheapest car insurance

Auto insurers typically charge a few dollars a month for gap insurance or around $20 a year, according to the Insurance Information Institute. Your cost depends on individual factors like your car’s value. You’ll also need to buy comprehensive and collision coverage. To find the best company for you, compare car insurance rates with at least three insurers.

Lenders charge a flat fee of around $500 to $700 for gap insurance, according to United Policyholders, a nonprofit consumer group, though credit unions may charge less than other lenders.

Remember, if you add the coverage to your loan, you’ll also pay interest on it. That means you could pay more than $700 for three years of gap coverage from a dealer compared with $60 from your auto insurer.

Prices and interest rates will vary, so always check with your dealer and car insurance company to accurately compare costs.

» MORE: Car insurance quotes: What you need to know

Gap insurance isn’t the only way you can protect yourself if your car is stolen or totaled. Here are other alternatives to consider.

• New-car replacement insurance: If you’re more worried about buying a new vehicle than paying off your old one, new-car replacement coverage might be a better choice for you (albeit more expensive). This coverage helps pay for a new car of the same make and model, minus your deductible, to replace your vehicle with a new one.

• Better-car replacement coverage: If your vehicle is declared a total loss, this type of coverage will give you money for a model that is newer and has less mileage.