Is Gap Insurance Worth It on PCP
It depends on how much you put down and how fast your car loses value against what you still owe.
Usually worth it if your deposit was small
Gap insurance pays the difference between what your motor insurer gives you after a write-off or theft and what you still owe under the PCP agreement. On a PCP deal, you often owe more than the car is worth for much of the agreement, because your payments are weighted toward the end and the car depreciates from day one.
If you put down a large deposit, or you're well into the agreement, that gap narrows and the cover matters less. If you put down little or nothing, or you're early in the deal, the gap can be large and the cover does real work. Check your settlement figure against a current valuation of your car to see where you actually stand.
How much you owe versus what the car is worth
This is the number that decides everything. Ask your finance company for the settlement figure, which is what you'd owe if the car were written off today. Then look up what your car is worth right now on the used market. The difference between those two numbers is what gap insurance would cover.
Early in a PCP agreement, that gap tends to be widest, because the car has already dropped in value but you haven't paid much off the loan yet. Later in the agreement, the gap usually shrinks, sometimes to nothing, because you've paid down more of what you owe.
Some cars hold their value better than others. A car that depreciates slowly narrows the gap faster than one that drops in value quickly, so the same deposit and the same point in the agreement can leave very different gaps depending on the car.
What your motor insurer already pays out
Your ordinary car insurance pays out the market value of the car at the time it's written off or stolen, not what you paid for it and not what you still owe. Gap insurance sits on top of that payout and covers the shortfall against your finance.
Before you decide, ask your motor insurer how they calculate a total loss payout, since some use trade guides and others use wider market data, and the figures can differ. A more generous total loss payout narrows the gap you'd need covered.
Also check whether your PCP agreement already includes any shortfall protection. Some finance companies build a version of this in, or offer it as an add-on at the point of sale, and paying for a separate gap policy on top could mean paying twice for the same protection.
Questions people ask about this
Does gap insurance cover voluntary termination on a PCP?
Most gap policies are written to cover total loss from an accident, theft, or write-off, not a voluntary termination you choose to make. Read the policy wording or ask the provider directly, since this varies between insurers and isn't something to assume either way.
Can I buy gap insurance after I've already started a PCP agreement?
In most cases yes, there's a window after you take out the finance agreement during which you can still buy a standalone gap policy. Check how long that window is with the provider you're considering, since it isn't the same everywhere.
Is gap insurance from the dealer the same as buying it separately?
The cover itself can be similar, but the price often isn't, since dealer-sold gap insurance is frequently more expensive than the same protection bought from a standalone provider. Compare the policy terms, not just the price, before deciding where to buy it.
What happens to gap insurance if I end my PCP deal early and switch cars?
A gap policy is usually tied to the specific finance agreement and car it was bought alongside, so ending that agreement early typically ends the cover with it. Check the policy terms for any refund of unused premium if you cancel partway through.
Do I still need gap insurance if I'm putting down a large deposit on PCP?
A large deposit narrows the gap between what you owe and what the car is worth, so the cover does less work for you. Work out your likely settlement figure against a realistic valuation before paying for a policy you may not need much.
Compare car insurance quotes to see what your insurer would actually pay out if your car were written off.
Ask your finance company for your current settlement figure and compare it to what your car is worth on the used market this week. If the gap is small, you may not need separate cover at all. If it's large, get the gap policy wording in writing before you buy, and check exactly what triggers a payout. Ask your motor insurer how they value a total loss, since that number is the other half of the equation. Decide based on the actual gap you've calculated, not a guess.
