What is GAP Insurance and what does it cover?

Most car owners, especially on newer models, will have fully comprehensive motor insurance. Should the car be stolen, or damaged beyond repair then the insurance company would pay out some form of compensation.

However, the value of the car determined by the insurer is based on the trade value. This is usually lower than the retail value. This difference is greater for brand new cars, as, through deprecation, the trade value and the retail value could differ as much as 50% to 75% in the first three years. So if a finance agreement was taken out for the purchase of the car, the motor insurance settlement may not be enough to repay the finance.

GAP Insurance, which stands for Guaranteed Asset Protection, bridges the gap between the amount you paid for your vehicle and the insurance companies valuation.

For Example, if the current value of the car was £7,500 retail, and the insurance settlement was £4,600 then the GAP benefit would be £2,900.

Who can take out GAP Insurance?

Anyone who has full comprehensive insurance can take the addition GAP insurance. The age of your vehicle may determine the type of GAP insurance you can take out. The main types are typically:

RTV (Return to Value)

Typically this type can be taken for vehicles up to 7 years old. The gap payout is the difference between the motor insurance settlement and the value of the car when you took out the gap insurance.

RTI (Return to Invoice)

This type is more useful for brand new cars, or cars owned for less than 3 months. The shortfall would be from the motor insurance company to the invoice value of the car, i.e. the price you paid when you bought the car from your dealer.

VRI (Vehicle Replacement Insurance)

This pays the difference between the motor insurance settlement and the cost of a replacement new vehicle. It may seem similar to RTI, however, there is the added benefit of taking in the account a price increase of the new vehicle due to inflation. For example, if the vehicle was bought for £18,000 initially, and 2 years later the same vehicle was priced at £19,000, then the gap benefit would be the difference between the settlement and the £19,000 price.

The small print: When does GAP not payout?

GAP insurance will only pay out if your motor insurance also pays you a settlement. This may seem obvious, but there are sometimes terms and conditions on the motor insurance that can stop the settlement being paid. e.g. leaving your car keys in the car, during the theft of it, when you are paying for petrol at a service station, may be deemed as negligence by your insurer. Also, some vehicles are not covered such as grey import or commercial vehicles. So it is worth asking the GAP insurance company for its exclusions.