The insurance that you have been offered is the version that is attached to a finance arrangement but there are several versions. I should first point out that this is an insurance product that is regulated by the Financial Services Authority so when deciding whether to take out the policy you should be given advice by a regulated advisor.

I can therefore only give you my own interpretation of the cover provided. GAP stands for General Asset Protection although it is a very apt title as it fills the gap between what your insurance company would pay out, should you have a total write off, and what the lender would want in settlement of the finance.

In the early stages of a finance agreement this can be many thousands of pounds unless you have paid a large deposit or initial rental. So it would make sense to take out this type of GAP insurance. There is also what is known as 'back to invoice GAP' whereby the GAP insurance would pay you the difference between what the insurance company has paid out, following a total write off and what you originally paid for the car.

This enables you to replace your written off car with an equivalent new or used car to your car when you bought it. Similarly, there is a new for old GAP which pays the difference between your insurance payment and a new car. This is usually only available on new cars. It allows for any price increases or lost discounts/bonuses on a replacement new car. For example, when you bought your car you may have been offered £2,000 off the car, as a result of a promotion running at the time, and the price of the car may have increased a couple of times since you bought it.

In which case the GAP would pay the difference between the insurance settlement and the new cost of the replacement car. There are one or two different variations to the GAP products available but as the product is covered by Financial Services regulations you should be able to tell your broker what you want to cover and he should be able to provide the product. New for old and back to invoice GAP is available on cars that are bought for cash or on finance, you choose the product to suit your requirements.