- Should you buy GAP insurance from a motor dealer?
- What motor dealers normally sell
- The FCA rules when a dealer offers GAP insurance
- What our customers were quoted by motor dealers
- How Insurance Premium Tax affects the price
- What to compare before buying
- The problem with some discounted or free policies
- The FCA's 2024 intervention and the 6% statistic
- When a dealer policy may be a reasonable choice
- When buying independently may be better
- Questions to ask the dealer
- Frequently asked questions
Should you buy GAP insurance from a motor dealer?
The short answer: a motor dealer's GAP insurance policy may provide suitable protection, but you do not have to buy it and should not assume that it offers better cover simply because it is sold with the vehicle.
Buying a car already involves a surprising number of decisions. There may be finance, a part-exchange, servicing, warranties and several insurance add-ons to consider, often while somebody is waiting for a signature.
GAP insurance deserves to be considered separately. Ask what the policy is designed to protect, how a claim would be calculated and what the complete premium will be. Then compare it with suitable alternatives.
Sometimes the dealer policy will stand up well to that comparison. Sometimes it will not. The point is to find out before you buy it.
What type of GAP insurance do motor dealers normally sell?
Most UK motor dealers that sell GAP insurance offer some form of Invoice GAP. This will usually combine Finance GAP and Return to Invoice protection, although policies do vary.
A combined Invoice GAP policy will normally aim to top up the motor insurer's Total Loss valuation to the higher of:
- the original vehicle invoice price; or
- the finance agreement settlement figure at the time of claim.
This is considerably more useful than standalone Finance GAP for most people because Finance GAP by itself only tries to protect the amount owed to the finance company. It does not normally restore the customer's deposit or capital already repaid.
Some dealers may offer Replacement GAP, Contract Hire GAP or differently branded products with names such as "shortfall cover", "asset protection" or "vehicle price protection". The name printed on the brochure is not enough. What matters is how the cover responds in the event of a claim.
What rules apply when a motor dealer offers GAP insurance?
The Financial Conduct Authority introduced specific rules to give customers time to consider GAP insurance away from the immediate pressure of the vehicle sale.
Before the policy can be concluded, the dealer must provide prescribed information including:
- the total premium, shown separately from the price of the vehicle and other goods or services;
- the main benefits, significant exclusions and limitations;
- the duration of the policy;
- that the policy is optional; and
- the fact that GAP insurance can be purchased from other providers.
The deferred opt-in period
The dealer will normally have to wait for at least two clear days after providing the required information before concluding the sale of the policy.
If you initiate further contact and ask to proceed sooner, the policy may be concluded on the day after the information was supplied.
You can use that time to compare the policy without delaying the purchase or collection of the vehicle. See the current FCA GAP insurance sales rules.
How do motor dealer GAP insurance prices compare?
When customers buy GAP insurance from us, we ask whether their motor dealer offered them similar cover and, if so, how much the dealer wanted to charge.
Not everybody provides a figure, but 280 customers who bought a policy from us between 1 August 2025 and 31 July 2026 told us what they had been quoted by their dealer.
280
customer price comparisons
£417
average motor dealer quotation
£250
average GAPinsurance.co.uk premium
£167
average difference in price
Across all 280 comparisons, the motor dealer had quoted an average of £416.90, while the average premium paid to GAPinsurance.co.uk was £250.45. That is an average saving of £166.45 achieved by our customers.
Our price was lower than the dealer quotation in 260 cases, which is almost 93% of the comparisons. It was higher in 19 cases and virtually the same in one.
A little context: these figures are based on prices voluntarily provided by customers who went on to buy a policy from us. We have not independently checked every dealer quotation, and the policies being compared may not always have provided identical cover. They offer a useful real-world snapshot, but price should still be considered alongside the policy type, claim calculation, duration and terms.
Does dealer GAP insurance attract more Insurance Premium Tax?
Usually, yes. A GAP insurance policy supplied by a motor dealer with the vehicle will normally be subject to the higher 20% rate of Insurance Premium Tax. GAP insurance purchased independently from GAPinsurance.co.uk is subject to the standard 12% rate.
IPT is applied to the gross insurance premium, including commission. In simple terms, a larger commission in the dealer's policy can increase both the underlying premium and the amount of tax paid by the customer.
| Average premium breakdown | GAPinsurance.co.uk | Dealer (estimated) |
|---|---|---|
| Net premium | £162.59 | £225.82 |
| Gross commission | £61.03 | £121.60 |
| Retail premium excluding IPT | £223.62 | £347.42 |
| Applicable IPT rate | 12% | 20% |
| Applicable IPT charged | £26.83 | £69.48 |
| Retail premium paid by the customer | £250.45 | £416.90 |
Context: these figures are based on average premiums from the same 280 dealer price comparisons (see above) for policies sold between 1 August 2025 and 31 July 2026. The GAPinsurance.co.uk figures come from our actual policy records. The dealer figures assume commission equal to 35% of the retail premium excluding IPT. Individual dealer arrangements may vary, and the remaining dealer premium may be shared between the insurer, policy administrator and other parties in the supply chain.
For motor dealers, HMRC treats a standalone Finance GAP insurance policy differently from Invoice or Replacement GAP that can protect the vehicle invoice price or replacement cost. See HMRC's guidance on GAP insurance and IPT.
What should you compare before buying dealer GAP insurance?
Price matters, but it is only one part of the comparison. Start with the financial position you would want restored after a Total Loss, then check whether the policy actually does that.
Claim calculation
Does it protect finance only, the original invoice price or the cost of an equivalent replacement vehicle?
Full policy duration
Does the same protection apply throughout every year, or does it reduce to Finance GAP later?
Claim limit
What is the maximum GAP payment, and could it realistically meet the shortfall the policy promises to protect?
Cash payout?
Will the GAP claim be paid in cash, or must you accept a replacement or credit from a particular dealer?
Market Value clause
Can the GAP payout be reduced if the motor insurer values the vehicle at less than the GAP insurer believes it is worth?
Options and extras
How are factory options, dealer-fitted accessories, negative equity and the motor insurance excess treated?
Also check eligibility, cancellation rights, what happens if you sell the vehicle or settle the finance early, who administers a claim and whether the premium will be added to the finance agreement. If it is financed, you may pay interest on it too.
Can discounted or free dealer GAP insurance leave you out of pocket?
It can, if the discount is shown on the paperwork in the wrong place.
We have seen dealers offer a heavily discounted or apparently free GAP policy while still showing the policy at its full price on the sales invoice. The vehicle price is then reduced by the same amount to keep the total payable unchanged.
| Invoice item | What the customer may expect | Discount-offset presentation |
|---|---|---|
| Vehicle price | £30,000 | £29,583 |
| GAP insurance | £0 | £417 |
| Total payable | £30,000 | £30,000 |
The total is the same, but the financial protection isn't.
An Invoice GAP claim will normally work back to the original discounted vehicle invoice price. In the second column of figures, that price is only £29,583. The £417 GAP insurance premium would not be covered by the GAP insurance policy, so the customer could be £417 out of pocket in the event of a claim on the dealer's GAP insurance policy.
Check the invoice, not just the total: ask the dealer to show the vehicle price and GAP premium separately, and confirm that a discount on the insurance has not quietly been taken from the vehicle instead.
This is not a theoretical concern. Read our original example: Free GAP insurance for £824?!
What happened to the GAP insurance market in 2024?
In 2024, insurers representing around 80% of the GAP insurance market agreed to pause sales after the Financial Conduct Authority (FCA) raised concerns about product value. The regulator had identified some distribution arrangements where commission reached as much as 70% of the premium.
Several firms were later allowed to restart after making changes, including materially reducing the level of commission. The intervention applied across the GAP insurance market, although the particularly expensive dealer distribution chains were an obvious part of the concern.
Read the FCA's February 2024 announcement and its May 2024 update.
Why the widely reported 6% statistic needs context
The FCA reported that claims costs during 2022 represented approximately 6% of written GAP insurance premiums in the same year. That annual snapshot was widely repeated in a way that could easily be mistaken for the final claims outcome of the policies sold.
It was not, however, a completed lifetime claims ratio: many GAP insurance policies were written for three, four or five years and remained capable of producing claims long after the end of the 2022 reporting period.
What happened to the GAP policies we sold in 2022?
Our own records provide a useful illustration of how the claims position develops when the same group of policies is followed over time.
Of the GAP insurance sales premium we took during 2022, 1.64% had been paid out in claims by the end of that year. By 11 August 2026, claims paid under those same policies were equivalent to 67.35% of the original premium.
By the end of 2022
1.64%
By 11 August 2026
67.35%
In other words, the claims ratio for that same group of policies sold in the FCA's 2022 reporting period increased by 65.71 percentage points, from 1.64% to 67.35%.
A little context: this is a cohort comparison rather than a reproduction of the FCA's annual value-measures calculation. We have taken the original retail premium, excluding IPT, from all non-cancelled GAP policies we sold during 2022 and compared it with claims paid under those same policies by two different dates. Claim payments include the separately recorded contributions towards customers' motor insurance excesses.
The FCA has since acknowledged that the average GAP policy lasted around 36 months and that it takes time for changes to appear in its value measures. That is why an annual percentage should not be presented as though it shows the completed lifetime claims outcome of multi-year policies. See the FCA's November 2024 explanation.
There was another distortion too. When dealer premiums are inflated by large commissions, claims paid as a percentage of those premiums will look lower. Charging more for the policy does not increase the amount it will pay when the vehicle is written off.
None of that means customers should ignore questions of fair value. Quite the opposite. It is why the premium, commission, policy protection and eventual claim calculation need to be considered together rather than reduced to one headline percentage.
When might a dealer GAP policy still be a reasonable choice?
A dealer policy may be entirely reasonable if:
- it protects the financial position important to you;
- the claim calculation and limit are suitable;
- the same protection lasts for the whole advertised term;
- its restrictions are acceptable; and
- the complete price compares fairly with suitable alternatives.
Convenience has a value too. Some customers may prefer to arrange everything in one place. They should simply know what that convenience costs and whether it changes the protection they receive.
When might buying independently be the better option?
Buying independently gives you the opportunity to compare policy types, underwriters, claim calculations, benefits and prices away from the pressure of completing the vehicle purchase.
It may be the stronger choice where the independent policy offers broader protection, fewer restrictions or a materially lower premium. It may also give you access to a type of cover the dealer has not offered, such as Replacement GAP.
Independent does not automatically mean better, just as dealer-supplied does not automatically mean poor. Read the documents and compare the substance.
Questions to ask a motor dealer about their GAP insurance
What type of GAP insurance is it?
Whether it is Finance, Invoice, Contract Hire or Replacement GAP insurance makes a difference. Sadly, we do see dealers offering a type of cover that does not suit the customer’s needs.
Is it combined Finance & Invoice GAP?
Standalone Finance GAP will not protect your original invoice price. At the other extreme, standalone Invoice GAP may leave you financially exposed during the early stages of an HP or PCP agreement if you paid little or no deposit and the finance settlement exceeds the invoice price. Combined Finance and Invoice GAP protects the higher of those two figures.
What is the total cost including IPT?
Motor dealers must show the full cost of their GAP insurance separately from the vehicle and everything else you are buying from them.
Will the premium be added to the finance agreement?
If so, ask what it will cost over the full finance term, including interest. We also see dealers offering GAP insurance for "only" £12.99 a month, for example, but over 36 months that still adds up to a whopping £467.64.
What is the claim limit?
The claim limit is the most the GAP policy will pay in addition to the motor insurer’s valuation of the vehicle. Check whether it is sufficient for the protection being advertised.
Is the level of cover consistent for the entire duration?
Motor dealers have been known to sell policies advertised as "Invoice GAP" that revert to Finance GAP in the fourth or fifth year. By then, the outstanding finance may be close to or below the vehicle’s market value, leaving little or no Finance GAP shortfall to pay.
Are claims paid in cash?
With some motor dealer GAP policies, an eligible payout is made to the dealer and must be used to obtain your next vehicle from them. That can be restrictive. Following a Total Loss, you may want a different make or model, or you may not want or need another vehicle immediately.
What happens if the motor insurer undervalues your vehicle?
There are some deductions made by a motor insurer that you would not normally expect GAP insurance to cover, such as reductions for excess mileage, non-disclosure or pre-existing damage. But what happens when the motor insurer and GAP insurer simply disagree over the proper value of the vehicle?
Some GAP insurance policies contain "Market Value" clauses. These can allow the GAP insurer to calculate the claim using the valuation it believes the motor insurer should have paid, leaving you responsible for the difference.
Generally speaking, GAP insurance policies containing Market Value clauses should be avoided.
What does the policy exclude?
Ask about negative equity, dealer-fitted and factory-fitted accessories, modifications, vehicle use and motor insurance excess limits.
Has the vehicle price been discounted?
Motor dealers sometimes offer discounted, or even "free", GAP insurance. In our experience, however, the sales invoice will often show the policy at its full price and reduce the vehicle price by the same amount.
This can leave you out of pocket following a future claim because the GAP insurance works back to the discounted price of the vehicle. It does not include the cost of the GAP policy itself.
See our example above for more details.
You do not need to memorise all of that in the showroom. Ask for the quotation and policy documents, take them away and compare them during the deferred opt-in period.
Frequently asked questions about dealer GAP insurance
No. GAP insurance is optional and you can compare suitable policies from other providers. The dealer is required to tell you that GAP insurance is optional and may be available elsewhere.
Normally, at least two clear days must pass after the dealer gives you the required information. If you initiate contact and ask to proceed, the policy may be concluded sooner, but not before the day after you receive the required information.
For example, if a dealer gives you the required GAP insurance information on a Monday, the normal earliest conclusion date is Thursday. You may ask to conclude it on Tuesday or Wednesday, but you must initiate the request, consent to the earlier conclusion and confirm that you understand the normal restriction.
No. In our recent customer data, GAPinsurance.co.uk was cheaper than the dealer quotation in 260 of 280 valid comparisons. Our premium was higher in 19 cases and effectively the same in one. Price should always be compared alongside the cover and policy terms.
Most UK motor dealers that sell GAP insurance offer some form of Invoice GAP, usually combining Finance GAP and Return to Invoice protection. The calculation, claim limit, term and additional benefits can vary, so check the policy rather than relying on its name.
Check the vehicle invoice carefully. Sometimes the GAP premium is shown at full price while the vehicle price is discounted by the same amount. That can reduce the original vehicle invoice price protected by an Invoice GAP policy.
Often, yes. However, a motor dealer will often have a shorter purchase window than an independent provider such as GAPinsurance.co.uk. Purchase windows and eligibility rules vary by policy and underwriter, so check the available cover promptly rather than assuming every provider allows the same period.
GAPinsurance.co.uk can potentially provide Invoice and Replacement GAP insurance up to 180 days after you take delivery of the vehicle. Contract Hire GAP insurance can usually be purchased at any time, provided more than 12 months of the contract hire agreement remain.
Compare before you decide
See the GAP insurance policies currently available for your vehicle and circumstances.
About David Burns-Keane
David Burns-Keane founded what became GAPinsurance.co.uk in March 2004, establishing what he understands to have been the UK's first independent, specialist provider to sell GAP insurance directly to consumers online.
For more than two decades, David has sought to act as a consumer champion within the GAP insurance industry. He has challenged the high prices often charged by motor dealers while working to give motorists a clearer, better-value alternative.
His work has also focused on improving the protection itself, with clearer explanations, stronger policy wording and better terms and conditions. David remains closely involved in how the policies offered through GAPinsurance.co.uk are designed, explained and supported. This guide was written and reviewed by him.
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