Electric Car Chat

The Electric Car Insurance Trap No One Talks About

• Graham Hill • Season 2 • Episode 6

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Most EV owners don’t realise their insurance leaves a gaping hole — until it’s too late. One accident could cost you tens of thousands unless you know how to protect yourself.

In this episode of Electric Car Chat, I uncover the truth about GAP insurance — the overlooked safety net that can save your EV (and your wallet) when disaster strikes.

Here’s what you’ll learn:
 ⚡ The three types of GAP insurance — back-to-invoice, replacement, and financial — and which one could save you the most.
 ⚡ Why EV depreciation is different (and riskier) than traditional cars.
 ⚡ The shocking cost of EV battery disposal: from £600 for a hatchback to over £11,000 for premium models.
 ⚡ How finance and lease agreements leave owners dangerously exposed.
 ⚡ The small print you need to know: excess cover limits, waiting periods, and why the “two-day opt-in rule” works in your favour.

Don’t wait until your EV is written off to discover the financial shortfall. Listen now, subscribe, and make sure your electric investment is properly protected.

👉 For more resources, visit grahamhilltraining.com

To buy a copy of Electric Cars - The Truth Revealed visit grahamhilltraining.com. If you are interested in sponsoring this podcast or would be interested in working together please visit grahamhilltraining.com/contact


Hi I’m Graham Hill and I’m making even more of a ruckus. I’m the author of Electric Cars – The Truth Revealed and, as I’ve mentioned before, please go to grahamhilltraining.com where you can buy a copy of the current book and you can also sign up for the training. The new book and the course should come out later in 2025. You’ll get the course at a ridiculously low price compared to the hundreds when it’s finally launched. And the new book will be sent out when complete free of charge if you buy the current book. In the meantime, book and course sales help to fund this podcast. 

OK, today I was going to talk about problems with your battery and what is covered by your insurance and what is covered by the manufacturer’s warranty. However, whilst this is an immensely important subject, given the cost to replace a battery pack can be well over £20,000. Get this wrong and you could find that neither your warranty nor your insurance covers the repair or replacement. 

But I’ve decided not to talk about it today as I’m saving it for a podcast on the dangers of myth busting and when a myth buster can get things dreadfully wrong if you follow their advice. When you can face financial risk, injury or possibly death by following a trusted myth buster’s advice then it needs to be called out so watch out for this edition. 

So instead, I’m talking about something that could save you thousands of pounds if the worst happens to your EV and you’re involved in an accident or your car is stolen, or irreparably damaged due to fire or flood resulting in a total write-off or loss. It's called GAP insurance, and trust me, after what I'm about to tell you about electric car depreciation, you'll want to listen to every word I have to say. 

So, first of all, what is GAP insurance? It’s actually an abbreviation and stands for General Asset Protection. However, most people understand it to coincidentally mean the difference between what the insurance company pays out for your written off car and a variety of payout options. Hence the description GAP.

Let me be clear, the GAP insurance will only payout following a successful claim made on your car insurer. So, if your insurer suspects a fraudulent claim and refuses to payout you will not be able to claim on your GAP insurance. 

So, assuming that your car is to be considered to be a write-off and your insurer pays out the current market value of your car how does GAP insurance come into play? It’s this question that sometimes leaves customers more confused after receiving the explanation than before the question came up. And for that reason, it’s not always been that popular, because it’s not been explained properly or because ICE cars have depreciated at a very predictable rate and the amount paid out by your insurer has enabled you to replace say your 2 year old car with another 2 year old identical model on similar mileage. 

So if you paid say £30,000 for a new car and wrote it off after 2 years, the depreciation would be around 50%, in other words the insurance company would pay out £15,000 and within a small margin you should be able to buy a replacement, 2 year old car on a similar mileage for around £15,000. However, you will have to pay your excess if the accident was considered to be your fault. So if your excess is £500 you will only receive £14,500.

So, in these circumstances you can opt for ‘Back To Invoice’ GAP. So this will pay the difference between what the insurer pays out, whether it‘s your insurer or the other party’s insurer, if the accident was deemed to be their fault and the original invoice price, which in this case is £30,000. So you will receive £15,000 from your insurer, less your excess, and £15,000 from your GAP insurance provider. But it doesn’t stop there. Your GAP provider will usually also pay towards your excess. The most common amount is usually between £500 and £1,000 although I’ve seen policies that allow for a higher excess for a slightly higher premium. So, with a £500 excess you’ll receive £14,500 from your insurer and £15,500 from your GAP provider as long as they cover the excess for £500 or more. 

When carrying out a mystery shop in car dealerships we found that the excess cover was often omitted. So, ask the question before taking the GAP insurance. Also, there’ll be a maximum invoice value, often set at £50,000. You’re not restricted to the GAP offered by the dealer. You’re free to obtain the GAP anywhere. In fact, the law insists that the dealer gives you 2 days to find an alternative, referred to as the Deferred Opt-In Period. This is the period between having the GAP insurance described to you and you buying it. This is especially important if you’re including the cost in with the finance. This can actually work out to be 4 days, the day you visit the dealership and have the product described to you, the two days to consider alternatives and the day you visit the dealer again to take the dealer GAP. If the car is financed and you’re including the GAP in the finance the dealer will be prompted by the lender to ask if you were given the two days to consider the offer. I should add that you can sign a waiver saying that you don’t want the 2 days of grace and that you’re happy with the dealer’s product.

Dealerships selling Gap insurance must tell you the following before you buy a policy:

The total premium for the Gap insurance.

The length of the policy.

The features, benefits, unusual exclusions and limitations of the product.

That the product can be bought elsewhere from standalone providers.

If you wait two days or longer, the provider should go over the detail of the policy again before signing the agreement. The decision to waive the waiting period must be initiated by you; it can't be suggested by the dealership. This could be important if you experience issues with a GAP insurance payout.

About a year ago the FCA carried out an investigation into GAP insurance to establish whether dealer GAP and GAP in general provided good value. The industry saw this coming and tidied up its act before the investigation so by the time the FCA investigated, pretty much all the providers were operating fairly and given a clean bill of health. Whilst dealers are paid a commission, as they are when providing any insurance product, I don’t believe that these payments will get caught up in the finance commissions debacle currently still hitting the headlines. 

It must be over 30 years ago that I was offering insurance products alongside the finance as a vehicle finance broker. In those days brokers and dealers regularly received 50% of the premium as a commission. So, a £500 policy covering 3 years would pay the broker £250. I don’t believe that this would be considered fair by the FCA or the Financial Ombudsman so I doubt that this level of commission is still being paid. 

So, should you ignore the dealer GAP and start Googling cheap GAP insurance? Well, you could do but this is where commerce and regulators bang heads. Economists see pretty much everything through the prism of numbers. So, the regulators, being economists, would expect you to shop around for the best GAP cover at the cheapest rate. In fact, I’d expect that the FCA would forget the best GAP and just expect you to go for the cheapest. And seeing the only justification in taking out the dealer’s GAP would be for the sake of convenience and the ability to add the premium into the finance and speed up the delivery of the car. But, if the dealer is part of a reasonably sized group, they would probably have put the GAP insurance out to tender. Having ended up with a good policy for their customers and reasonable commission they agree a deal which will include a smooth payout system. With maybe thousands of policies at stake every year the insurer will ensure that he provides a premium service and make quick payouts to claimants.  

It’s been my experience that the commercial pressure applied by the dealer group in the event of a dispute can get things sorted pretty quickly as opposed to dealing with the cheapest provider found on-line. There could be a reason why they’re the cheapest. 

So, you have back to invoice GAP and your car is on finance, say HP or PCP. The car is written off and the finance company calculates the settlement cost. It’s better these days as the settlement takes the total amount outstanding but refunds the included interest. So not too bad. Let’s consider an example. The car was invoiced at £30,000. You paid a deposit and you’re paying HP over 3 years. You have an accident and the car is written off after 2 years. The insurance company values the car at £15,000. The finance company wants £14,000 to settle the finance so your insurer pays you £15,000 less the £14,000 less your excess, say another £500. The GAP provider pays the original invoiced amount less the payout from your insurer, that’s £30,000 less the £15,000 payout = £15,000 but you have effectively paid the £500 excess which is reimbursed by the GAP provider. So you end up with £15,500 from the GAP provider and the balance of £500 from your car insurer. If that’s confusing I’ll maybe include the calculations in the show notes or you can read a copy of the full transcript.

I’ve also created an early termination calculator for HP and PCP agreements to double check a settlement payment requested by your insurer in the event of a total write off. It may not agree with the insurer to the penny but it will give you an idea. In the case of a PCP you will have the outstanding finance less interest to pay along with the final balloon payment.

You can cancel your GAP policy at any time. If you cancel within 30 days you’re entitled to a full refund, after that the insurer will calculate a pro-rata refund based on the time left on the policy. Be careful if you receive a refund after including the GAP insurance in your finance. I’ve had a Rip Off Britain viewer complain that she cancelled the GAP insurance and received the refund of £650 that was included in the finance but as they didn’t issue a new agreement she found that whilst she received the full refund, they of course left the insurance as part of the agreement so she continued to pay for it plus interest. The interest wouldn’t be a lot but she was still paying it. In fact, the GAP should have just simply been cancelled and removed from the finance agreement. So you just have to keep an eye on this, it clearly won’t happen that often.

Next is Replacement GAP. This allows for your car to be replaced with the cost of a new replacement car. You won’t have a car given to you, you will receive the cost of the car in settlement. This will normally take into account any available discount so they won’t simply pay out the list price. The reasoning is that if the insurer bought a brand-new car to exactly replace your 2-year-old car, that’s been written off, they would take advantage of any discounts available. You may have bought a £30,000 car with a £2,000 discount but the price of a new replacement when the car is written off 2 years later is £32,000 with a discount of £3,000 which means the GAP insurer will pay you £29,000 up to their maximum plus the excess less the amount paid out by your insurer less any finance settlement and the excess that is reimbursed by your GAP provider. When the dealer offers GAP he will provide you with a full explanation and worked examples.

Before taking out any GAP insurance you should check your fully comprehensive car insurance policy as it’s not unusual for the policy to include a ‘New for Old’ clause whereby they replace your car, if written off, with a brand new car if this happens in the first year. Some extend this to the first two years. In which case you only need to take out a Replacement GAP policy from either year two or year three onwards.

If you took out replacement GAP on a used car then the GAP insurance would look at the cost to replace the car with a similar make, model and mileage as the written off car when you originally bought it. So, if you owned a Ford Focus that was 4 years old with 30,000 miles on the clock when you originally bought it the GAP insurer would offer the cost to replace your written off car with a similar car to your car when you purchased it. As with a new car the GAP would pay out the difference between what your insurer pays out and the cost of the replacement plus the excess up to their maximum. Your insurer will payout the current value of the car less any excess and less any outstanding finance.

Now, what I’m about to say is incredibly important. If the insurer decides to write the car off and makes a payout he’ll use the payout to settle any finance because they are now the owners of the car. That’s standard across all types of car whether ICE, hybrid or electric. As owners of the car, they’re responsible for legally disposing of it. And this is where GAP insurance can come into its own if you have an electric car.  With electric cars, disposal can be very expensive because there’s a possibility that if the battery hasn’t caught fire that it could do at any time, in storage, in transit and at the recycling centre. Whilst there are now companies able to recycle batteries there is a charge to recycle them and there is a legal obligation to recycle the batteries from electric vehicles, including those deemed a write-off. The Waste Batteries and Accumulators Regulations 2009 mandated the collection, treatment, and recycling of all waste batteries, including those from electric vehicles, and there's of course a ban on landfill disposal. 

To give a perspective, according to some online reports, the recycling of batteries fitted to a small hatchback can be around £600, a BMW iX1 was found to cost just over £7,000  and an Audi Q8 eTron as high as £11,500. Some insurers are believed to make an adjustment to the settlement figure to allow for part of this cost of battery disposal but, I have to say that this is unlikely, however, check your insurance terms. Informed pundits have blamed this high cost of battery disposal on the higher EV insurance costs. The whingers say that the EV insurance costs should be less than ICE cars as they’re less likely to have accidents quoting historical accident data. I would suggest that it’s not so much the frequency of accidents in the past, more the higher cost of an increasing number of accidents in the future. After all this is what insurance is all about. 

Some people have asked about buying the car from the insurance company after the car has been written off, especially given the increase in the number of EV battery repair shops that are now able to repair batteries if damaged batteries are the only or main reason for the write off. There are 4 categories of car write off, A, B, S and N. If A or B the insurer cannot allow you to buy the car, the cars must either be crushed, as with A or stripped for parts for category B but if the write off is categorised as S or N they can sell you the car but there are some very strict laws when it comes to making the cars roadworthy. And think very carefully before trying to buy a written off electric car. If you can’t repair the car to the required standard you may end up having to dispose of the car which could cost thousands of pounds in recycling costs. 

If you have a personal number on the car the insurer should let you put the number on retention so that you can transfer to another car at a later date. If you’re going to put a personal plate on your car you should check with the insurance company what the procedure would be in the event of a total write off to ensure that they don’t simply include the plate as part of the value of the car. And as many people change insurers each year make sure that you check this with the new insurer before making the change. Always make sure that you transfer the plate before the insurance company takes ownership.

You must also advise the DVLA if the car is written off. You can do this online on the GOV.UK website. You can be fined if you don’t do this so make sure that you do. You will be asked for the registration number, Insurer’s name and the reference on your V5C which is your log book.

OK, now let’s move onto the 3rd type of GAP insurance and that’s known as Finance or Financial Gap. It‘s very simple. It covers the difference between what the funder requires as a settlement and what the insurance company pays out as the market value of the car. Generally, you’re at most risk early into the agreement when depreciation is at its highest and the capital repayments of the car are at their lowest. This type of GAP is not so good for cars financed on HP or PCP, you would be better off opting for back to invoice or new for old GAP and you may only need the GAP for years two or three onwards if your normal car insurance has a new for old clause in the policy. 

The most common use of Financial GAP is when taking a car on contract hire or a lease. Most new lease cars are heavily discounted which eats into the early depreciation. When I carried out some work for British Car Auctions I came up with a very simple depreciation model, it was 30, 20, 10 being the percent of discount from the list price on what’s known as a straight line method. That’s not important but some accountants may question my workings if I didn’t mention it, I’m just making it simple. That has remained a good guide for 30 or so years. So, take a car with a list price of £30,000, in year 1 it will loose 30% or £9,000, year 2 it will lose a further 20% of list price or £6,000, taking the value down to £15,000. At the end of year 3 it will lose a further 10% or £3,000 taking the value down to £12,000 or 40% of the original list price. Now, as I’ll explain when we get onto finance, cars on contract hire are generally discounted heavily, so it wouldn’t be unusual for the £30,000 car to be discounted by say £10,000 which is more than the car’s expected depreciation of £9,000 in the first year. So if you write the car off in the first year the settlement figure from the leasing company is unlikely to be more than the payout from the insurance company. Don’t forget that you would have paid an initial rental as well as a few of the monthly payments before writing the car offl. But this situation can’t be guaranteed as you’re never told what the car is sold to the leasing company for, and besides there are other benefits to taking Financial GAP.  

Whether you have financial GAP or not, if your leased car is written off you must advise the leasing company immediately with details of your insurance. The leasing company will then get in touch with the insurance company and negotiate a settlement. You’ll have no further need to be involved, other than provide information as requested. The insurance company will pay out the leasing company direct. If the amount paid, less your excess is less than the leasing company’s settlement figure you will be expected to pay the shortfall. You will also effectively lose your initial rental that you paid when the contract started.

An area of confusion is when the insurance payout is higher than the settlement figure. Whilst some customers have complained that the excess between the payout and the finance company settlement should be paid to them, as the insurance was in their name, that’s not how it works. In this case the difference remains with the leasing company as they own the vehicle. The reason why there is equity in the payout is often because the finance company has negotiated a good discount on the car in the first place providing you with a low monthly rental so any equity is payback for their smart negotiating. The only good news is that the insurance company should deduct your excess from the payout and only after that, if there is a shortfall will you have to make a payment. But that’s not always the case so check with your insurance provider how they deal with written off leased cars. And check your lease agreement to see how they also deal with written off cars and the resulting insurance claim. 

If you take out Contract Hire Financial GAP it will cover your excess up to a limit, I’ve seen £250 to £1,000 so check that against the excess you’ve agreed to with your insurer. The other thing it can cover is your initial rental, sometimes incorrectly referred to as a deposit. The GAP insurance will pay up to a limit of say £3,000 which will allow you to find a new car and take it on contract hire with the same monthly payment and the same initial rental thus taking away some of the pain and stress of having your car written off. Finally, on the subject of contract hire Finance GAP, before you dash out and take out a new agreement, check the insurance cost. Following a write off you may see a substantial increase in the insurance cost of the same car even with no claims discount protection. Having a total loss will invariably have an effect on your insurance premium and you may have to consider a replacement car with a lower insurance cost.

OK that ends this podcast on GAP insurance. In the book re-write I’ll provide some samples and calculations that I hope will make things much clearer if you’re a little confused. If you’re considering GAP either through the dealer or via the Internet the providers should provide you with a very clear explanation as to how each of their products work. And like any insurance product you can cancel at any time and claim a pro-rata refund for any unused period. 

Also, check the claims waiting period. Some insurers don’t allow a claim within 15 days of taking out the policy whilst others have a 30 day waiting period. Check your policy. 

One final piece of advice when it comes to electric cars. Unlike ICE cars, depreciation isn’t anywhere near as consistent. One minute we see that used electric cars are a good buy because used electric cars are at an all time low. But that doesn’t help the sales of new cars on lease or PCP, so fewer new cars are registered, but it also means that the market value has dropped when the insurance company is valuing your written off car making it more likely there will be a deficit between the insurance payout and any finance you have outstanding. So I strongly recommend that you at least consider GAP insurance. And compare the cover, cheap insurance will normally mean less cover.

Please sign up for all the podcasts by going to grahamhilltraining.com/podcast or subscribe on whichever platform you’ve found this podcast on. I look forward to catching you on the next podcast in this series of Insurance podcasts. In the meantime let’s all continue to make a ruckus. I’ve been Graham Hill, Bye for now. 

Calculations:

Back To Invoice Gap. Calculations when car is written off 2 years after purchase.

Original Invoice Amount:                                 £30,000

Insurance Settlement:                                       £15,000

Finance Settlement (inc Balloon if PCP):        £14,000

Balance Payable To You Less £500 Excess:   £     500   (£1,000 - £500 Excess) 

GAP Payout: £30,000 - £15,000 = £15,000 + Excess £500 = £15,500