Unfortunately some cars depreciate in value at a fast rate, with some models reducing in value quicker than others. Standard car insurance only normally offers 'new car replacement' during the first twelve months of the policy. This means that after this point, if you car is stolen or unrepairable, you'll be left out of pocket as you'll only receive the value of a second hand replacement.
GAP insurance allows you to mitigate this risk, by covering any shortfall in the claim from your standard policy.
How It Works
There are several different types of GAP insurance, allowing you flexibility to choose the product right for your purpose. The basis of the different types is the same, but there are two common varieties:
- RTI (Return to Invoice): This can be purchased for new and older cars. It covers the difference between the insurance payout and the original purchase price of the vehicle (or the remaining amount owed to a car finance company), up to the claim limit you've previously set
- VRI (Vehicle Replacement Insurance): This is only available for new cars (e.g not classic cars), and covers the cost of a new replacement car – even if it has gone up in price.
Make sure you choose the policy which best suits your needs – remember price is only one consideration, and paying for inadequate insurance is a total waste of money.
What to look out for
If you've bought a new car, your standard policy should cover you for the initial 12 months. This means you can shop around for a deferred GAP policy, which will only kick in after this period, when you're lacking coverage.
Some of the key details you should be aware of in the terms and conditions:
- Excess fee – some policies will cover any excess fee owed for making a claim on your standard insurance (normally up to £250)
- Maximum Level of Cover – Most providers set this at £25,000, but can be adjusted. It's essentially the maximum you can claim for the shortfall, and should be scaled to your vehicle/circumstance
- Maximum Vehicle Value – with the lowest being around £30,000 and highest £180,000, some insurers place limits on the value of the car they're willing to cover
- Length - You can find policies ranging from anything from one to five years.
- Vehicle Age - As mentioned previously, some insurers/policies will only cover brand new cars, this is because 'classic cars' can appreciate in value and have different assessment rules.
Using a Third Party for GAP Insurance
It's quite likely that your current car insurance provider will offer a policy or add-on for GAP insurance. However the price can vary greatly between providers, and as such you should shop around to get the best deal. You're likely to find independent third parties who offer stand-alone GAP insurance which is cheaper than those offered by regular dealerships. This is mainly due to car insurers putting less focus on selling GAP insurance, and therefore is costs them more to provide than independent providers.© Bukki88 | Dreamstime.com