What Are the Main Types of GAP Insurance? Which Type Do You Need?
There are different types of GAP insurance that are suitable for different situations. The best GAP insurance for you will depend on when you buy the policy, how you bought your car, and what you want to get from your policy.
Although all GAP insurance policies aim to protect you from the depreciation of your vehicle, they do so in different ways.
There are several main types of GAP insurance that will suit different people, depending on their circumstances, budget, and preferences.
Read on to find out more about the various policies and see which could be the best GAP insurance for you.
MORE: What is GAP insurance?
Return to Invoice GAP Insurance
Return to Invoice (RTI) GAP insurance is designed to make sure you get back exactly what you originally paid for your car should you write it off.
For example, if you paid £20,000 for your car but only received £13,000 from your car insurer, RTI GAP insurance would make up the difference and pay you £7,000.
RTI GAP insurance may also be able to clear any outstanding finance you have left to pay on your vehicle, although there is a specialist GAP policy for financed cars (see below). Providers may state that they will pay either the amount of outstanding finance you have or the original price you paid for the vehicle, whichever is greater.
If your car is on finance and you choose RTI GAP insurance, you may be able to clear your finance and have some money left over to put towards a new car. However, this is not guaranteed and would depend on your individual situation.
This type of GAP insurance is available for both new and used cars, although it is more often associated with new cars. Some providers will need to see an invoice from a registered dealer in order to offer RTI GAP insurance, but others may accept you if you purchased your car from a private seller.
In all cases, Return to Invoice GAP insurance will need to be purchased within a certain number of days of buying your car. The exact period will vary between insurers.
Some providers will allow you to defer your cover if you have new car replacement with your car insurance.
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Return to Value GAP insurance
Return to Value (RTV) GAP insurance, also known as Agreed Value, is available on both new and used cars. However, this policy is more typically associated with used cars and those bought from private sellers as you don’t need proof of purchase from a registered dealer.
Rather than using the purchase price of your car as the benchmark figure in the event of a claim, RTV GAP insurance will instead use the value of your car at the time of taking out the GAP policy. The provider will use an independent industry expert, such as Glass’s Guide, to determine your car’s value.
Because RTV GAP insurance uses the value of your car at the time you take out the policy, it means you can buy the cover at any time, not within a limited period after getting your car.
For example, you may buy a car for £18,000, but then decide you want to take out GAP insurance one year later that values your car at £15,000. If you then write off your car another year later and your car insurer pays out £10,000, your GAP insurer will pay £5,000, so you would receive £15,000 in total.
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Vehicle Replacement GAP insurance
Vehicle Replacement GAP insurance is the most comprehensive level of GAP insurance.
Although details can vary between providers, this type of GAP insurance will normally cover the cost of either the amount you paid for the vehicle, the cost of a brand new replacement car of the same age and specification as the one you initially purchased (or equivalent), or the amount of finance you owe on your agreement.
While this may sound similar to RTI GAP insurance, there is a difference. Vehicle Replacement can cover any rise in the value of your car, so if replacing your car with the exact model costs more than you initially paid for it, this GAP insurance policy will cover that cost.
Vehicle Replacement GAP insurance can be particularly useful if you bought your car at a discount.
An RTI policy would only compensate you the amount you paid for the car so, if you couldn’t get the same discount again, you may not receive enough money to get an exact replacement vehicle. However, because a Vehicle Replacement policy simply covers the cost of getting a new replacement, it doesn’t matter if it costs more than you originally paid.
For example, you could buy a car at a discounted price of £22,000. After it’s written off, you receive £15,000 from your car insurer but the cost of getting a brand new replacement may now be £24,000. With a Vehicle Replacement policy, you should get £9,000 so you have £24,000 in total, whereas a Return to Invoice policy would only offer £7,000 to cover the amount you first paid.
Despite its name, most Vehicle Replacement policies won’t actually give you a replacement car; instead, they will give you the equivalent value in cash for you to choose a car yourself.
Because it covers the possibility of a replacement car costing more than you originally paid, Vehicle Replacement can be one of the more expensive GAP insurance policies.
As with RTI GAP insurance, you need to buy Vehicle Replacement GAP insurance within a set number of days of purchasing your car and you may need to buy your car from a dealership. However, this may vary between providers.
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Vehicle Finance GAP insurance
Unsurprisingly, Vehicle Finance GAP insurance is for drivers who have purchased their vehicle using car finance, including Hire Purchase and PCP. In the event that your car is written off, this GAP insurance policy will clear any outstanding finance payments you have left to pay, including the balloon payment if you are on a PCP deal.
For example, if your car insurer pays out £10,000 for your lost car but you owe £13,000 on your car finance agreement, this GAP insurance will pay out £3,000 so you can clear your balance.
Having this insurance means you don’t have to worry about paying off your debt or paying a lump sum that you can’t afford, so you can start afresh and buy a new car outright or on finance.
However, while this means you won’t be left paying for a car you no longer have, Finance GAP insurance won’t leave you any money to put towards a new car as it simply pays off the finance company. In many cases the GAP insurer will pay the finance company directly, but others may pay the money to you.
If you have carried any negative equity from a previous car finance deal to your existing one, this may not be covered under a standard Finance GAP insurance policy. There are specific negative equity GAP insurance policies that could cover this situation though.
Most providers will allow you to get Finance GAP insurance at any time, regardless of when you bought your vehicle.
If you lease your car, there are also some specialist Contract Hire GAP policies that can clear your outstanding rental payments.
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COMPARE: Vehicle Finance GAP insurance
Which type of GAP insurance do I need?
Ultimately, the best type of GAP insurance for your situation will depend on a variety of factors. These will include:
- When you bought your car.
- How you bought your car.
- Where you bought your car.
- Whether your car is used or new.
- What you want to get from your GAP insurance.
Before committing to buying any type of GAP insurance, compare the terms and exclusions of the different policies to make sure you get all the cover you require.
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Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more