Understanding Types of GAP Insurance

Types of GAP Insurance explained

When a car is written off or stolen, standard motor insurance only pays the current market value. Because cars depreciate quickly, this payout can be significantly less than what you originally paid or still owe - leaving you financially exposed.

That is where GAP insurance comes in. Designed to cover the shortfall between your motor insurer’s payout and your real-world costs, GAP Insurance offers that extra financial protection. There are three different types of GAP Insurance, each suited to specific ownership and finance situations. In this guide, we break down the different types of GAP Insurance, explained in detail, so you can understand which one is right for you.

What is GAP Insurance and Why are there different types?

From the moment you drive away, your car starts to lose its value, often much faster than many drivers expect – this is called vehicle depreciation. Meaning the market value paid by your insurer after a total loss may not reflect what you paid, what you owe, or what it costs to replace the vehicle. This is how car deprecation creates a ‘gap’ between insurance payouts and real-world costs. This is why a one-size-fits-all policy approach does not work due to differences in:

• New vs Used vehicles - where purchase price and replacement costs vary
• Finance Agreements – such as PCP, HP or Lease Contacts
• Replacement expectations - whether you want to replace the car or simply settle outstanding costs.

What Are the Different Types of GAP Insurance?

There are several GAP insurance options available in the UK, each designed to cover a specific type of financial shortfall. Below is a clear breakdown of the main types of GAP insurance and how they work.

Return to Invoice (RTI) GAP Insurance

Return to Invoice GAP Insurance covers the gap between what your insurer pays out and either the original price you paid for your car or the amount you still owe on your finance, whichever may be higher. RTI is typically for new or used cars purchased within the last 6 months, protecting you from early depreciation when your vehicle loses value fastest. Return to Invoice GAP ensures you don’t lose out on your original purchase price after a total loss.

Return to Value (RTV) GAP insurance

Return to Value GAP Insurance helps cover the difference between what your insurer pays out based on the current value market of your car at the start of the policy. RTV GAP Insurance is often used on new or used cars purchased more than 6 months ago from a private seller and where the original invoice price is no longer relevant.

Contract Hire and Lease GAP Insurance

Contract Hire and Lease GAP Insurance is used for new or used cars purchased on a lease or contract agreement – covering early termination charges on leased vehicles. Contract Hire and Lease GAP Insurance covers up to £15,000 towards the outstanding balance on your agreement, including £3000 towards your initial rental payment, £500 towards insurance excess payments and £1500 on accessories cover.

Vehicle Replacement GAP insurance

Vehicle Replacement GAP Insurance covers the difference between your insurer’s payout and the cost of a brand-new equivalent vehicle at the time of your claim. This is particularly useful where list prices increase over time and helps ensure you can replace your car with a like-for-like new model.

Finance GAP Insurance

Finance GAP Insurance covers any shortfall between your insurer’s payout and the outstanding balance on your finance agreement. It is designed to settle finance agreements, not fund a replacement vehicle and it is it most common with PCP and HP agreements.

Types of GAP Insurance - Frequently Asked Questions

Are there different types of GAP Insurance?

Yes, there are several types of GAP Insurance including Return to Invoice, Return to Value, Contract Hire & Lease GAP, Vehicle Replacement and Finance GAP Insurance. Which are all designed to suit different ownership and finance scenarios.

What is the most common type of GAP Insurance?

Return to Invoice GAP Insurance is typically the most chosen options, particularly for new and nearly new cars.

Which type of GAP Insurance offers the most protection?

All these types of GAP Insurance offer protection, but the level of protection depends on your circumstances. RTI GAP Insurance ensures you’re protected in the event of a write-off, covering you for the gap between what you paid for the vehicle or any outstanding finance and the insurer payout. RTV GAP Insurance covers the difference between what you paid for the car and the insurance payout so you can purchase the same vehicle again. So, each type of Insurance varies on what you specifically need.

How long does GAP Insurance cover you for?

A GAP Insurance policy will typically last three years, however, it is dependent on the policy you choose. GAP cover direct from a dealer could be shorter - generally one year.

Key things to check before choosing GAP Insurance

Before you follow through with your GAP Insurance Policy, there are some important things you must consider:

• Vehicle Eligibility and age limits
• Maximum number of claim limits you can make per policy
• Policy Duration - when will your policy end?
• The full claims process and the exclusions of your policy

When it comes to choosing the appropriate GAP Insurance cover, it is crucial to understand the different types of GAP Insurance, how they work and what they cover. This puts you in the best position to choose cover that truly suits your vehicle, finance agreement and wider financial protection.