Car GAP insurance basically covers any shortfall should you write your car off and not receive enough on you car insurance to pay off any finance or lease agreement or buy another car of the same standing. But with a number of different GAP options available, which should you buy?
Having decided you want to buy GAP insurance the next big decision is to decide which type.
If your car is written off, under your car insurance your insurer will agree to pay an amount in line with the Glass’s Guide, taking into account any conditions within your policy e.g. excess payment you have and any value limits stated.
The Glass’s valuation takes into account the age, condition and mileage of the car – as it will have depreciated over time and depending on how much you have used it and how well you have kept will adjust the value to slightly above or below that considered right for its age.
The shortfall between the amount you paid for the car, the amount you owe to a finance company or the amount you need to replace the car with one of the same standing, can be covered by GAP insurance.
As you might imagine, to cover the various avenues you might need to take, there are are a number of GAP options available:
Return to Invoice (RTI) – is available on new and used cars owned for under 3 months. It pays the difference between the amount you get under your car insurance and the amount you paid for the car, the invoice amount for the car. Such a policy will usually be available for 1 to 4 years. As with all insurance, there will be differences between policies which you will need to check – don’t just judge a policy as best because it is cheapest.
Consider if the policy pays any of your car insurance excess, what is the maximum level of cover available e.g. for some policies the limit is set at £25,000. Does it pay the invoice amount before any deposit deduction? What’s the maximum payout relative to the Glass’s Guide retail price?
Example of Return to Invoice GAP Insurance
Imagine you bought a car 18 months and the
- Original cost of vehicle – £18,000
- Deposit – £2,500
On writing your car off your
- Car Insurance company pays you £10,000
- Return to Invoice GAP Insurance pays you £8,000 – the difference between the original cost and the amount received from the insurance company.
Return to Value (RTV) – this refunds the difference between the value of your when when you buy the policy and the depreciated value offered by your insurer should your car be declared a write-off. It can be purchased for all cars and is available for up to 7 years after you buy the car.
Example of RTV GAP Insurance
- Price paid to buy the car – £17,000
- Car Insurance settlement – £11,000
- Shortfall paid to you by GAP – £6,000
Contract Hire or Lease GAP Insurance – is available for the period of the contract you have and can be bought up to 3 months into your contract period. The GAP cover is for the shortfall between the balance outstanding to the lease/contract hire provider and the amount received from your comprehensive car insurance provider. Be aware that some leasing companies can charge up to 90% of the rentals outstanding when a car is written off.
Example of Lease GAP Insurance
You buy a lease car for £399 per month under a 48 month contract.
Month 15 your car is written off at which point you still owe the leasing company £13,167
Your comprehensive car insurance pays out £11,500
The GAP cover can be used to cover the shortfall of £1,667
Replacement GAP Insurance – available for new car owners and will provide you with a new car of the same make or type should your comprehensive car insurer consider your car a write-off.
Example of Replacement GAP
- Amount paid for new car – £18,000
- Car Insurance settlement – £12,000
- List price for new car – £19,000
- GAP insurance benefit – £6,000
- New Car replacement benefit – £1,000
- Combined total benefit – £7,000
A final point to note
As with all insurance, as you buy GAP insurance, the key point is to make sure you are clear on the type and level of cover you need to meet your requirements. Do your research and then buy the policy that best meets your criteria – it might be the cheapest available but it might not!