Gap insurance

There are several different types of policy available, depending on how old the car is, and where and when you bought it.

Here are the three types of policy offered by Warranty Direct:

1. Vehicle replacement insurance (VRI) covers the difference between the insurance payout and the cost of a similar new car (same make, model and specification).

This is only available for new cars that are less than three months old and with less than 1,000 recorded miles.

2. Return to invoice (RTI) pays the difference between the insurance payout and the original value of the car when you bought it.

This is available for new and used cars valued up to £120,000 which have been bought from the dealer within the last three months.

3. Return to value (RTV) covers the difference between the insurance payout and the value of your car when you took out gap insurance.

To qualify, cars must be valued under £50,000, bought privately or from a dealership, and have been owned for more than three months.

Say you bought your car for £8,000, which depreciates at roughly 20% per year.

By year three, it’ll be worth about £4,000 at market value. That’s nearly a 50% drop overall!

If your car is stolen or written-off, then your insurer will only pay out the market valuation of £4,000. It's unlikely that this'll be enough to buy a newer equivalent model, leaving you to fork out for the £4,000 shortfall or settle for an older car.

If you’d taken out gap insurance when you’d first bought your car, you’d get £8,000 (£4,000 from your insurance policy and £4,000 from the gap cover). This would mean you’d be in a better position to get a suitable replacement without having to dip into your own pocket.