What is depreciation insurance? Depreciation insurance, also known as GAP insurance, is a way of making sure you’ll get back every penny you paid for your vehicle if you should have to claim.

Standard insurance policies work on the basis that your car’s value goes down, or depreciates, with time. So, on a standard policy, if your car is stolen or damaged beyond repair, your insurer will always award you an amount less than the price you bought the vehicle for.

GAP Insurance

Depreciation insurance is a way of protecting against this lowering of value. On a basic level, for an additional payment depreciation insurance works with your standard insurance policy to ensure that if the worst happens, and you do need to claim for the value of your car, the amount you receive will be equal to what you originally paid.


You buy your car new for around £7,600.

Three years later, your car is, unfortunately, stolen, and you make a claim.

On a standard insurance policy you would typically receive around £5,500 from the claim.
That’s £2,100 less than what you bought the vehicle for. This is because in the eyes of an insurer, a car depreciates, or loses value, by about 15% to 20% every year.
However, you have depreciation insurance as well, so you are, in fact, awarded the original amount £7,600.

However, there are different types of depreciation (or GAP) insurance. As usual, if you’re thinking of entering into a new policy, it pays to know what you’ll be handing over your money for. Here are some brief explanations of a few of depreciation insurance’s key phrases.

What is Return to Value Car Depreciation GAP Insurance?

This is perhaps the most basic level of depreciation insurance, though arguably one of the most valuable. This works more or less like the example above. The depreciation insurer makes up your standard insurer’s pay-out to your vehicle’s original cost. There is typically no limit on when you purchased the car, whether it was a private sale or from a dealer, bought with cash or through finance.

What is Return to Invoice in Gap Insurance?

This works in a very similar way to Return to Value (above). The difference is that you will typically have had to buy your car from a dealer and taken out the depreciation policy within 90 days of purchase.

What is Finance Shortfall in Gap Insurance?

This is only relevant if you’ve purchased your car on a finance policy. The depreciation insurer pays out the difference between the remaining finance to be paid on your car and your standard insurer’s settlement.

What is Vehicle Replacement Cover in Gap Insurance?

This type of policy (also known as New Car Replacement GAP or VRI) essentially provides for you to buy a replacement car if yours should be written off or stolen. In this case, the depreciation insurer will pay the difference between your standard insurer’s settlement and the cost of a replacement vehicle. This will even take account of any rise in price for the model by the manufacturer. To qualify, your car will usually have to have been new when the policy started, with you as its first owner.

Is Gap Insurance Worth the Money?

You answer will depend on your personal finances. Depreciation insurance typically works out as only a fraction of the cost of your car. For instance, if you bought your car for £7,700, you might pay around £300 for three years’ depreciation insurance. That works out at just under 4% of your car’s value. So if you can stretch to the extra cost, then it may well be worth it.

Of course, you may also want to factor in the price of your car when considering taking out depreciation insurance. You may feel there’s a lot more at stake if your vehicle was a very expensive purchase, compared to a cheap second hand ‘banger’.