Vehicle Replacement Gap Insurance: Your Ultimate Guide to Protecting Your Car
Vehicle Replacement Gap Insurance is designed to cover between the motor insurer's settlement, if the vehicle is written off or stolen, and the cost of the equivalent replacement vehicle at the time you claim. If the vehicle you originally bought was new, it would be a brand-new equivalent or superseding model. If your vehicle was used when bought, it would be the replacement cost of an equivalent vehicle matching the same age, mileage and specification on the day you first bought it.
Navigating the world of motor insurance can be a challenging and confusing task. That's why understanding the different types of insurance available to you is essential. Many believe that a simple, fully comprehensive motor insurance policy is as much as you can do to protect yourself.
This is not the case, and relying on your motor insurer's settlement to replace your vehicle could leave you out of pocket.
Why? Because comprehensive motor insurance may only cover the current market vehicle value when you claim. If that results in the vehicle being written off by the motor insurer, you could be left with a finance settlement to make, AND you need to replace it too.
Here we will delve into Vehicle Replacement Gap Insurance policy details, exploring how it works, how it can complement your motor insurance cover, plus the key differences and advantages compared with other types of Gap Insurance cover.
Here's how Vehicle Replacement Gap Insurance operates when you need it:
- You purchase a new car for £30,000.
- After a few years, your car's market value depreciates.
- Your car is stolen or deemed a total loss in an accident.
- Your primary motor insurance only compensates you for the market value of £20,000.
- A brand new, equivalent car is now £35,000
- Vehicle Replacement Gap Insurance covers the £15,000 difference between the current market value settlement by your motor insurer and the cost of the new replacement, This allows you to purchase a new car of the same make, model, and specifications without incurring additional expenses.
There are several types of Gap Insurance available, but two main types are:
Some key differences between Vehicle Replacement Gap Insurance and these other types of Gap Insurance are:
- Coverage Amount: Vehicle Replacement Gap Insurance covers the difference between your car's market value and the cost of a replacement vehicle. This considers both the depreciation of your current car and any increased costs of a replacement. In contrast, RTI Gap Insurance covers the difference between the market value and the original purchase price. Finance/Lease Gap Insurance covers the remaining balance on your financing or lease agreement.
- More Applicable Situations: Vehicle Replacement Gap Insurance is ideal for individuals who want to ensure they can replace their vehicle with a new one in case of total loss or theft. In particular, this can be where you have a good discount, or the manufacturer is about to update the model, and the replacement cost will probably increase. Return to Invoice Gap Insurance is suitable for those who wish to recoup their initial investment, while Finance/Lease Gap Insurance is best for individuals with outstanding loans or leases.
Vehicle Replacement Gap Insurance offers a range of benefits, including:
- Protection Against Depreciation: This insurance accounts for the depreciation of your vehicle, ensuring you can replace it with a new one without additional out-of-pocket expenses.
- Protection Against Inflation: If the cost of the equivalent replacement vehicle rises above the original invoice price you paid, then this increase in cost can be added to your settlement too.
- Financial Security: In the event of a total loss or theft, you won't be burdened with replacing your car.
- Peace of Mind: Knowing you're protected in unforeseen circumstances can give you peace of mind as a car owner. These include how much will your current car lose in value and how much you will need to replace it if it is written off or stolen.
Vehicle Replacement Gap Insurance may be better and more comprehensive than Return to Invoice (RTI) Gap Insurance in certain situations. Here are some reasons and examples of where Vehicle Replacement Gap cover can be a better option:
1. Protection against increased vehicle prices
Vehicle Replacement Gap covers the cost of a brand-new replacement vehicle of the same make, model, and specifications as your original car, even if the price of the new vehicle has increased since you bought your car.
For example, let's say you bought a car for £30,000, and after a few years, its market value depreciated to £20,000. This is what your motor insurer pays. If the price of a new, equivalent car has increased to £35,000 due to factors like inflation, market fluctuations, or increased demand for new cars, Vehicle Replacement Gap Insurance would cover the £15,000 difference, allowing you to purchase a new, equivalent vehicle without additional out-of-pocket expenses.
In contrast, RTI Gap Insurance would only cover the £10,000 difference between the market value (£20,000) and the vehicle's outright original purchase price (£30,000), leaving you with a £5,000 less in settlement to cover the increased cost of the new car.
2. Coverage for discontinued or updated models
If your car's specific make and model has been discontinued or significantly updated since your purchase, Vehicle Replacement Gap Insurance can be beneficial. In this case, the insurance will cover the cost of a new, equivalent vehicle that is closest in specifications and features to your original car.
In contrast, RTI Gap protection only covers the difference between the market value and the original purchase price. This claim amount may not cover the cost of a new, equivalent vehicle with updated features or a newer model.
In summary, Vehicle Replacement Gap can be a better and more comprehensive option than RTI Gap Insurance in various situations. It provides better protection against increased vehicle prices, offers comprehensive coverage for vehicles with significant depreciation, and ensures coverage for discontinued or updated models.
Vehicle Replacement Gap or VRI Gap Insurance - The Total Loss Gap Advantage
There are many Gap products bearing the name Vehicle Replacement Gap. However, they can be very different in how they can cover you. Buying this type of Gap Insurance from Total Loss Gap can provide you with a number of advantages.
3 in 1 cover - A combined Invoice and Replacement Gap is our product. This means that our VRI product can cover you, in the event of a write-off or theft, between the motor insurers settlement and the HIGHER of:
- the replacement cost of the equivalent vehicle
- the original price you paid
- the outstanding finance settlement
This means if the original price you paid exceeds the replacement cost, you do not lose out. In that circumstance, we will revert to the higher invoice price you paid instead of, the lower replacement cost.
This may not happen often in a claim, but knowing you are getting the best possible outcome is good. You also do not need to choose between a Return to Invoice Gap and a Vehicle Replacement Gap when you buy your vehicle. This policy takes the guesswork away.
Cash settlement - Our VRI policy provides a cash settlement. Unlike others, we do not seek to supply your next car for you or dictate what car you get next. Cash settlements give you the choice of what you drive next.
Additional protection for discontinued models - If your car's manufacturer stops production in the future, it can be impossible to calculate the replacement cost of your vehicle. Other VRI products would revert to the original invoice price you paid. However, we feel that is not giving you full value for a replacement cost, as you have bought the policy expecting the replacement cost to increase. So, with Invoice and Replacement Gap from Total Loss Gap, if no equivalent replacement vehicle is available, your settlement will be based on an extra 10% on top of the original invoice price you paid for the vehicle.
A nationally recognised Gap product - Total Loss Gap, has been featured on many consumer and car owner websites. It is also the current (as awarded in 2021) AutoExpress 'Best Buy' for Gap Insurance in the UK.
When you compare VRI Gap from other providers, please do not assume you get all these benefits and features. It could be a costly mistake in the event of a claim!
There can be an assumption that any Gap product bearing the Vehicle Replacement name will be the same. In reality, this is not the case, and if you are not careful, picking the wrong one could mean a difference of thousands of pounds in a claim.
What do you need to look for?
How are settlements made?
There are a couple of aspects to check here. Firstly, how will the insurer make the VRI settlement to you? There are a couple of ways this can be done.
- A cash settlement - making a cash settlement to you usually means you can replace the vehicle as you see fit. If you want the same car again, you will have the money. However, if you're going to get a completely different vehicle, you have the cash to do so. That is fine if this means adding to the money you have in a settlement. However, if you want to get something smaller or cheaper, you can do it also.
- A physical replacement - some VRI Gap insurers will look to provide you with a replacement car themselves. In this case, they could request a pro forma invoice from a VAT-registered motor dealer for the same replacement car or negotiate and purchase the vehicle for you.
There are a couple of further issues with the second option to consider. If you have been in an accident or were considering changing the vehicle as it does not suit your needs, being forced into a replacement may not be ideal.
The second issue comes when you refuse the offer of a replacement vehicle of the insurer's choice. If you do this, they may reduce your settlement to the original invoice price you paid for the original car. If you compare this to a VRI policy that pays out a payment for the replacement vehicle in cash, you may lose thousands of pounds in your settlement.
What happens if there is no direct replacement or superseding vehicle available?
Vehicle manufacturers can discontinue models, which leaves an issue in determining what replacement costs are used in a settlement. Again, some VRI products will revert to the original invoice price you paid with no direct replacement available.
However, we offer an added advantage and value at Total Loss Gap. If there is an equivalent replacement vehicle to use to calculate the replacement cost, then with a Total Loss Gap Invoice and Replacement Gap (our version of VRI), we will add 10% to the invoice price you originally paid.
This is an extra 10% payment, in cash, that you would not get from other VRI products that only used your original invoice value.
Who should consider Vehicle Replacement Gap Insurance?
- Vehicle Replacement Gap Insurance is ideal for those who want to ensure they can replace their vehicle with an equivalent replacement in case of total loss or theft, especially if they are concerned about depreciation AND appreciation of the replacement.
When is VRI Gap cover not the best option or not needed?
- When you have 'new for old' on your motor insurance, AND you do not need Gap cover for longer than this motor insurance feature is in force. Some motor insurance products provide a brand-new replacement vehicle instead of a financial settlement in the event of a total loss or theft. This is normally for the first year of ownership of a brand-new vehicle, but some motor insurers may extend it longer. This will be subject to eligibility plus terms and conditions being met. If you are happy with these terms, and you do not need longer than this cover is in place, then you may not consider VRI Gap cover necessary at all.
- You may have paid the full manufacturer's retail price for the vehicle. Where this happens, you may not see any advantage of VRI Gap over RTI Gap as there may be little prospect of the replacement vehicle costing more in the future.
How much does Vehicle Replacement Gap Insurance cost?
- The cost of Vehicle Replacement Gap cover varies depending on factors such as the vehicle make, model, and value, as well as your location and chosen insurance provider. Shopping around and comparing quotes is essential to find the best policy at the most competitive price.
- The relative premium cost of a VRI Gap policy compared with an RTI Gap policy will be more. This is because the VRI product can pay out more in a settlement.
Can I purchase Vehicle Replacement Gap Insurance for a used car?
- Yes, some insurance providers offer Vehicle Replacement Gap Insurance for used cars. However, the coverage may be limited and less comprehensive than for a new car. Be sure to check with your insurance provider for specific details and restrictions.
- For example, with Total Loss Gap, our VRI product is only available for vehicles up to 4 years old at purchase. This is compared to a maximum of 8 years old for Return to Invoice Gap eligibility.
When should I buy Vehicle Replacement Gap Insurance?
- The best time to purchase Vehicle Replacement Gap is when you buy your new vehicle, as this coverage is designed to protect your investment from the start. Some providers may allow you to purchase this coverage within a specific timeframe after purchasing your vehicle, so you must check with your chosen insurer for specific details.
How long does Vehicle Replacement Gap Insurance last?
- A Vehicle Replacement Gap policy typically lasts for the duration of your motor loan or lease agreement. However, some policies may have different terms, so it's essential to review the specific details of your chosen policy.
- With Total Loss Gap, we can offer our VRI Gap policy for between 2 and 5 years.
What else can VRI GAP cover in a claim?
- There may be several features that a Replacement style policy can cover. These include a contribution to the motor insurance excess deducted by the motor insurer in a claim. Other aspects, like dealer-fitted accessories, may also be covered, depending on the individual terms and conditions.
Can a Vehicle Replacement policy cover finance settlements?
- By adding the VRI settlement to your motor insurer's settlement, you can pay any outstanding finance due to the finance company on Hire Purchase, PCP or even a personal loan. Once you have paid off the finance agreement, the remainder of the settlement is yours.
In conclusion, a Vehicle Replacement Gap policy is an excellent option for car owners who want to ensure they can replace their vehicle with a brand new car (or an equivalent replacement car if used) in the event of a total loss or theft.
VRI Gap coverage offers protection against depreciation, financial security, and peace of mind, making it a valuable addition to your overall car protection package. By understanding the key differences and advantages compared with other Gap Insurance policies, you can make an informed decision and choose the best policy for your needs.