The Different Types of Gap Insurance Explained | This article contain Different Types of Gap Insurance, GAP insurance it’s a term that often comes up when purchasing or leasing a vehicle. But what exactly is GAP insurance, and why is it important?
GAP (Guaranteed Asset Protection) insurance is designed to protect you financially if your vehicle is stolen or declared a total loss due to an accident, fire, or flood. Types of Cyber Insurance Explained
With various types of GAP insurance available, understanding the differences can help you make an informed decision.
Understanding the Different Types of GAP Insurance
The various types of GAP insurance offer different levels of coverage based on your vehicle ownership and financing method.
Below, we explain each type and its suitability for different situations.
Finance GAP Insurance
Also known as:
- Shortfall GAP
- Finance Shortfall GAP
- Outstanding Finance GAP
Coverage: Finance GAP insurance covers the difference between your auto insurer’s payout and the outstanding balance on your car loan in case of total loss or theft.
If you’ve financed your vehicle through a hire purchase or personal contract purchase (PCP) plan, this policy can help prevent financial loss.
Example:
- Insurer payout: £8,000
- Outstanding finance: £10,000
- Finance GAP insurance pays: £2,000
Best for:
- Vehicles financed through hire purchase (HP) or PCP
- Loans with small or no down payments
- Long-term financing (4-5 years)
Not suitable for:
- Vehicles owned outright
- Loans from personal banks or unsecured financing
- Large initial deposits on HP or PCP
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Lease and Contract Hire GAP Insurance
Also known as:
- Lease Shortfall GAP
- Contract Hire GAP
- Shortfall GAP Insurance
Coverage: This type of GAP insurance covers the difference between the insurer’s payout and the amount still owed to the leasing company. Some policies also include deposit protection, covering the initial advanced rental payment.
Example:
- Insurer payout: £15,000
- Lease settlement: £20,000
- Lease GAP insurance pays: £5,000
- Deposit protection (optional): £3,000
Best for:
- Personal or business leases without ownership options
- Leases requiring an upfront deposit
Not suitable for:
- Outright vehicle purchases
- Vehicles financed through HP or PCP
Return to Invoice (RTI) GAP Insurance
Also known as:
- Back to Invoice GAP
- Retail Price Protection
- GAP Insurance RTI
Coverage: RTI GAP insurance bridges the gap between the insurer’s payout and the original purchase price of your vehicle.
This means you either recover your initial investment or, if you have an outstanding loan, pay off the balance and use the rest for a replacement vehicle.
Example:
- Original price: £24,500
- Insurer payout: £10,000
- RTI GAP insurance pays: £14,500
Best for:
- Vehicles purchased outright from a VAT-registered dealer
- HP or PCP financing
Not suitable for:
- Privately purchased vehicles
Vehicle Replacement GAP Insurance
Also known as:
- VRI GAP Insurance
- Replacement GAP
- Vehicle Replacement Insurance
Coverage: This policy covers the difference between the insurer’s payout and the cost of replacing your vehicle with an equivalent model, even if its price has increased due to inflation.
Example:
- Original price: £35,000
- Insurer payout: £20,000
- Replacement cost: £38,000
- VRI GAP insurance pays: £18,000
Best for:
- Vehicles purchased with manufacturer discounts
- New or nearly new cars
Not suitable for:
- Privately purchased vehicles
- Cars with low depreciation risk
Less Common Types of GAP Insurance
Agreed Value (Return to Value) GAP Insurance
- Covers the difference between the insurer’s payout and the car’s agreed value at the start of the policy.
- Suitable for vehicles purchased privately or those that have been owned for a while.
Negative Equity GAP Insurance
- Covers negative equity carried over from a previous finance agreement.
- Useful when a new finance deal includes unpaid debt from an older vehicle.
Lease Top-Up GAP Insurance
- Designed for extended lease agreements due to supply shortages.
- Helps cover the remaining lease settlement in case of total loss.
Top-Up GAP Insurance
- Annual renewable policy that adds a 25% top-up (up to £10,000) to your standard insurance payout.
- Ideal if your RTI or VRI policy has expired but you still want additional protection.
Choosing the Right GAP Insurance for You
There’s no single “best” GAP insurance policy it depends on your vehicle, financing arrangement, and financial risk tolerance. Comparing policies and assessing your individual situation will help you find the best coverage for your needs.
Understanding The Different Types of Gap Insurance Explained above will help you make an informed choice, ensuring financial protection if the unexpected happens.
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