What is the difference between Return to Invoice GAP insurance and Vehicle Replacement GAP insurance?

If you are considering buying GAP insurance for your car, you may not have realised that there are different options. How can you decide which type of GAP policy is the best option for you?

What does each option cover?

Return to Invoice (ROI)

If you claim on an ROI GAP policy it will pay you the difference between your car insurance pay out and either

- Your finance settlement figure or

- The price you paid for your vehicle

whichever is the higher amount.

Example

Mr H buys a brand new Mercedes for £66,000. He puts down a deposit of £6000 in cash and takes out a finance deal to cover the remaining £60,000 of his purchase. He then buys an ROI GAP policy.

Two months after buying the car, it is written off in an accident. Mr H’s car insurance provider pays out £55,000. The outstanding finance is £59,500. The ROI policy pays out £11,000 as the invoice price for the car was £66,000 which is higher than the outstanding finance.

Vehicle Replacement Insurance (VRI)

If you claim on a VRI policy it will pay you the difference between your car insurance pay out and either

- Your finance settlement figure or

- The cost of replacing your car with the same model at today’s prices

whichever is the higher amount.

Example

Mrs J purchases a second-hand Audi for £25,000 and takes out finance to cover the whole cost of the vehicle. She takes out a VRI GAP policy.

Nine months later Mrs J’s Audi is involved in a collision and is written off. Her car insurance pays out £22,000. The finance settlement figure is £23,000. When Mrs J looked to purchase a replacement car, she found the Audi she had is now a sought-after model and to buy a new one she would need to pay £30,000. The VRI insurance pays out £8,000 as the price to buy the car again is higher than her finance settlement figure.

What you need to consider when buying GAP insurance

With either GAP insurance option you would be able to pay off the outstanding finance on the damaged car so you would not be left with payments to make on a car you no longer own.

You may want to consider a GAP policy particularly if you have taken out a large loan to purchase the vehicle, or if you are concerned the value of your car may depreciate rapidly.

Think about how long you want the policy for. GAP policies cannot be renewed or extended but an existing policy can be transferred to a new vehicle.