You may be familiar with the phrase ‘new for old’ with regards to insurance, as many home insurance policies will have terms of this nature. This means, for example, if your old TV was stolen, and you made a claim to replace it then your insurance would provide you with the cost of a brand new TV as a replacement, hence ‘new for old’.
Motor Insurers can also provide ‘new for old’ insurance. This happens with a vehicle that is new when you first insure it, and in the event that it becomes a total loss (usually in the first year), the motor insurer will replace it for a brand new model instead of only paying the market value of the old one.
Gap Insurance can also provide ‘new for old’ cover, in the form of Vehicle Replacement Insurance, but how does it work?
Well to explain this it may be best to compare the difference between the most common form of Gap Insurance sold in motor dealers, Return to Invoice, and the ‘new for old’ Vehicle Replacement cover. With RTI Gap you are only protected back to the original price of the vehicle when it was first purchased. This means that if the original sales invoice said £15,000 then this is the figure you can protect back to. RTI is set on the price of the original vehicle, and this can cause one issue if you are looking for the same standard of vehicle again;
The original purchase price may not be enough to replace the vehicle in the future.
You see a £15,000 vehicle in 2014 may get you a brand new, shiny model straight from the showroom. However in 2019 that very same shiny model may now be £18,000. If you made a claim on your RTI policy on the old vehicle then this may leave you £3,000 short of being able to replace it. This is where a Vehicle Replacement policy can make quite a difference.
If you had taken a VRI Gap instead of an RTI Gap then (using the example above) your Vehicle Replacement cover would settle all the way back to the cost of the replacement vehicle, not the lower cost of the original purchase price. So using the example above then that would equate to a settlement of £18,000 for a VRI Gap policy, £3,000 more than an RTI settlement.
Vehicle Replacement Insurance will protect you back to the equivalent model to where you stated, so much like ‘new for old’ cover on other types of insurance.