Gap Insurance, asset protection, return to invoice, vehicle replacement, finance and contract hire, agreed value, total loss, shortfall……………………the list just goes on and on. All these names, and many more, are used in the Gap Insurance market today, yet depending on the provider they can mean very different things when it comes to the cover you are getting.
When you are offered ‘Gap Insurance’ by your motor dealer then you may be forgiven for thinking there is only one choice. In truth, in the open market there are a range of options, and they may be better suited for your particular vehicle purchase.
The basic Gap Insurance options can be split into four different types:
Finance/Contract Hire/Lease Gap Insurance – covers the difference between the motor insurers settlement and the outstanding finance settlement on a lease or hire purchase agreement
- Suitable for most leases, or a hire purchase agreement where you have only a small deposit in the agreement.
- Not suitable for cash purchases, personal loans or where you have a large deposit in the finance agreement
Return to Invoice Gap Insurance – covers the difference between the motor insurers settlement and the original invoice price paid. Most RTI Gap products are also ‘combined’ which means that if the finance settlement was actually higher than the original invoice price paid (as unlikely as that may be) then the Combined RTI Gap would settle the finance instead of paying you back to the invoice price.
- Suitable for cash and hire purchase based finance
- Not suitable for Contract Hire lease agreements
Vehicle Replacement Gap Insurance – covers the difference between the motor insurers settlement and the cost of replacing the vehicle with one equivalent to the original, at the time you bought it. For example if the vehicle was brand new when you purchased it then it would be the equivalent specification, brand new vehicle at the time you make your claim. Again, if the Vehicle Replacement policy is ‘combined’ then if your finance settlement was higher than the cost of the replacement then the finance would be settled instead of the replacement cost paid.
- Suitable for cash and hire purchase agreements
- Bot suitable for Contract Hire lease agreements
Agreed Value Gap – covers the difference between the motor insurers settlement and the value of the vehicle on the day you bought the policy. This value is normally defined by the Glass’ Guide value for the vehicle.
- Suitable for vehicles purchase privately, or outside the permitted time requirements for RTI, VRI or Finance Gap
As the Gap Insurance market has evolved, and these new products have developed, the choice in the market has grown for Gap Insurance products, but choice does cause its own problems, which Gap Insurance is best?
This is particularly the case with Return to Invoice Gap and Vehicle Replacement Gap, where you have to decide whether the original invoice price or the future replacement costs may give you more benefit. In most cases you may suspect that the replacement costs may be higher, but you cannot be certain. For example, if you are buying a brand new vehicle that is a fresh model on to the market then you may not get much of a discount. If the vehicle is subject to a ‘total loss’ then its replacement may be subject to more discounts from the manufacturer. It is not always the case that Vehicle Replacement will pay a higher benefit that Return to Invoice. Careful consideration is needed, and perhaps a bit of guesswork!
Whichever type of Gap Insurance you choose, it is crucial you do your homework. Blindly taking the most expensive option, in the hope that it will guarantee the best outcome, may not always be the best choice to make.