Return to Invoice Gap Insurance – Is this the best type of Gap cover?

First of all GAP Insurance is not a replacement for your normal car insurance policy; it is an important addition to protect you from the financial shortfall that is often the case when a car is written off.

Every year insurance companies write off over half a million cars due to accidents, theft or fire, and one third of stolen vehicles are never recovered.

The UK has a much higher rate of car crime than one would imagine!

A car is stolen every minute and there are over 200 serious accidents involving motor vehicles every day!

There are mainly three types of gap insurance…

Finance Gap Insurance

As the name suggests, finance gap insurance provides the most basic level of cover and will pay the difference between the settlement you receive from your motor insurer’s payout and the agreed value of your vehicle at the time of purchase.  The agreed value is usually based on the Glass’s Guide or the Parkers Guide valuation at the time of sale.

This type of policy will also cover the difference between any outstanding finance and the agreed value of the vehicle at the time of a claim.

Vehicle Replacement Gap Insurance

Sometimes referred to as VRI Gap, vehicle replacement gap insurance will pay the difference between the settlement you receive from your motor insurer’s payout and the value of replacing your motor vehicle with a new one of the same specification as the original, or a replacement vehicle of a similar age if the vehicle was not new when purchased.

For example, a new car costing £20,000 could be worth only 50% of the original purchase price after only 12 months. In the event of an accident or theft of the vehicle, the motor insurer would value the car at the current market value at the time of the incident. This could be as little as £10,000 for example! A vehicle replacement gap insurance policy would pay the difference up to the original purchase price or provide a replacement vehicle.

Whilst this type of policy provides the widest range of cover, it is more expensive and is generally aimed at new car buyers.

Return to Invoice Gap Insurance

Return to invoice gap insurance (RTI) pays the difference between your motor insurer’s settlement and the invoice price of your car at the time of purchase.

EXAMPLE:

• Invoice price of car £ 17,000.
• Insurer’s valuation of your car at the time of accident/theft £10,000.
• Return to invoice Gap Insurance policy will pay the difference £7,000.
• The RTI policy covers the vehicles depreciation!

This type of gap cover is fairly flexible and can be taken out for new and used cars, providing cover up to the value of £25000 usually, which is more than adequate for most cars.

The main benefit of return to invoice gap over a basic gap insurance policy is the fact that the cover bridges the gap between the vehicle’s write off value and the original purchase price as opposed to a basic gap policy which only covers the difference between the insurers valuation and either the agreed value based on Glass’s Guide, or the outstanding settlement figure.

Whilst replacement gap insurance will provide you with a replacement vehicle, in most cases taking out a return to invoice gap insurance policy will provide adequate cover in the event that your vehicle is written off.

Before you take out gap insurance you should consider the following facts:

1. How will you settle any loan taken out on your car and where will your deposit come from if your vehicle is written off?
2. If you have purchased your car using cash from your savings, how will you fund the difference between the insurers valuation and the amount you paid for your car.
3. With some cars depreciating at alarming rates it is worth considering your financial position in the event of an insurance write-off occurring.

You can find out more about return to invoice gap insurance and other types of gap insurance by following the links.