GAP stands for Guaranteed Asset Protection.
You may also see it referred to as Shortfall Insurance, Return to Invoice (RTI), Vehicle Replacement Insurance (VRI), Finance GAP or Agreed Value cover. While the terminology can vary, all of these policies are designed to address a similar issue.
In simple terms, Gap Insurance is designed to protect you against the financial impact of depreciation. It covers the difference between your motor insurer’s settlement following a total loss and a higher protected amount, depending on the type of policy you choose.
Why Gap Insurance is important
If your vehicle is declared a total loss, your motor insurer will settle the claim based on its market value at the time of the incident. This is typically lower than the amount you originally paid, as vehicles depreciate over time.
This can significantly affect your ability to replace your vehicle like-for-like.
If your vehicle is financed, you may also remain liable for any outstanding balance on your agreement. In many cases, the insurer’s settlement will not be sufficient to clear this amount, leaving you to fund the difference yourself.
How Gap Insurance works
Gap Insurance is designed to cover that shortfall.
Depending on the policy selected, it can:
- Settle any outstanding finance or lease balance
- Return you to the original invoice price of your vehicle
- Provide funds towards a replacement vehicle of a similar specification
This ensures that, in the event of a total loss, you are not left in a financially disadvantaged position.
Cover tailored to your circumstances
At Direct Gap, we offer a range of policies to suit different vehicle purchase types and customer requirements.
Whether you are looking to protect a finance agreement, safeguard your original purchase price or ensure you can replace your vehicle with an equivalent model, there are options available. Policies can also be structured to reflect how long you intend to keep the vehicle.
A practical example
Consider a vehicle purchased for £21,000.
After three years, it is declared a total loss and the motor insurer provides a settlement of £11,000 based on its market value at that time.
Without Gap Insurance, the remaining £10,000 shortfall would need to be covered by the customer.
With a Return to Invoice policy in place, this difference could be covered in line with the policy terms, allowing the customer to replace their vehicle without additional financial burden.
Understanding the risk
In the UK, hundreds of thousands of vehicles are written off each year. While comprehensive motor insurance provides essential protection, it does not account for depreciation or finance shortfalls.
Gap Insurance is designed to address this specific risk, providing an additional layer of financial protection where standard motor insurance ends.