Vehicle Replacement Gap Insurance is probably the best type of policy when you are considering buying a brand new vehicle. The added benefit of covering any increase in replacement cost, on top of the depreciation on the current vehicle, makes VRI Gap a natural choice for new car buyers especially.

However, there are issues with Vehicle Replacement cover that can cause confusion. The fact that the current vehicle depreciation and future increased replacement costs are involved make it difficult to comprehend what may be covered. Also the issue of how the VRI products can be settled seems to cause some misunderstanding.

When Vehicle Replacement Insurance products were first developed they were done so for motor dealers. Many of these products provided for the replacement model to be supplied by the very same motor dealer who sold you the policy. This is actually a great deal for the motor dealer, as they got the profit for the original sale, the VRI Gap insurance and the profit on the replacement vehicle.

Gap Insurance underwriters

Financial Ombudsman clarification on cash settlements

As the Gap Insurance market evolved, many of the online providers marketed VRI Gap Insurance that did not actually replace the vehicle at all, but paid a cash settlement to the policy holder instead. This give the insured full control over how they replace their vehicle. However, some other online providers have always been adamant that cash settlement break insurance rules. So who is right?

A recent debate on an internet forum seemed to confirm the conflicting information that one potential customer had been receiving. See the forum thread here.

Financial Ombudsman clarification on cash settlements on replacement cover

One of the leading online Gap Insurance brands, GapInsurance123, have release a statement on their website this week, confirming that their VRI Gap products are always settled in cash to the policy holder. They also explain why cash settlements are perfectly legitimate, and highlight sources on the Financial Ombudsman’s website that confirm this.

The Financial Ombudsman (the body who look at any complaints that cannot be resolved for insurance in the UK) indeed confirm that cash settlements are indeed a perfectly acceptable resolution to a replacement style insurance product. Indeed they go further in seemingly suggesting that even if the insurance company offer a physical replacement as a settlement, that the insured can insist on a suitable cash settlement instead.

It seems then that Vehicle Replacement products that offer cash settlements are certainly legitimate, and no insurance rules are jeopardised by either the insurer or the insured.


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