Types of Gap Insurance

There are 3 main types of gap insurance, these are:

  • Return to Invoice Gap Insurance
  • Vehicle Replacement Gap Insurance and
  • Finance Gap Insurance

Return to Invoice Gap Insurance

Return to Invoice Gap insurance is also known as Back to Invoice Cover or Vehicle Replacement Protection. It is widely known that a car looses between around forty to eighty five percent of its manufacture value within the first three years of ownership. The monetary value of this loss is massive with the car owner bearing the brunt of these losses.

A return to invoice gap insurance policy in addition to standard fully comprehensive motor insurance allows a motorist to reclaim the full purchase price of a vehicle in the case it is written off. This is due to the fact that the gap insurance policy will pay the difference between the standard insurance payout and the original cost of the vehicle or in the case of a finance agreement such as hire purchase, the gap insurance will cover the shortfall between comprehensive insurance policy payout and the outstanding costs to end the agreement.

Gap insurance may even in this case provide the claimant with additional funds to put towards a new car which without gap insurance would need to be covered by the motorist.

Vehicle Replacement Gap Insurance

Vehicle Replacement Insurance, also known as Shortfall Insurance, this type of Gap Insurance policy will pay the difference between an insurance payout and the cost of a new car with the closest specification to the original vehicle. This is particularly valuable insurance if for example the car that was written off is no longer being manufactured and the closest equivalent is more expansive than the old car, without Vehicle Replacement Gap Insurance, the motorists would be liable to cover the extra costs.

Vehicle replacement Gap Insurance can also be used to payoff outstanding finance agreements such Hire purchase or lease contracts.

Finance Gap Insurance

Finance Gap Insurance, often referred to as Contract Hire Gap Insurance or Lease Gap, is normally purchased in addition to fully comprehensive insurance to cover the negative equity built up through the write off of a car bought on a Hire Purchase agreement before the end of the contract. It is particularly beneficial if there is a balloon payment to be made at the end of the agreed term of the contract.

The dealerships and manufactures that offer Hire Purchase Agreements do so to make a profit, if a car under these agreements is written off the company will still require their money, which without Finance Gap Insurance, additional funds on top of comprehensive insurance payouts would need to be covered by the motorist.