Vehicle Replacement Insurance is probably the most popular level of Gap Insurance when you are considering a new car. Of course if you are looking at a new 13 plate vehicle this March, then it is only natural that you consider protecting your considerable financial investment with a Gap policy.
Why is it important to check your Gap claim limit?
When you buy a new car from a dealer, it is often preceded with an enticing discount or finance offer of some kind. This may indeed make your vehicle a ‘bargain’ purchase, and your concern may be that in replacing the vehicle after it is declared a ‘total loss’, your original purchase price may not be enough to replace with a new vehicle.
This is the primary argument for Vehicle Replacement Insurance as opposed to Return to Invoice cover for a new vehicle purchase. However there is still one issue that needs to be considered………..the claim limit on the policy.
The claim limit is the most you can ever claim on the Gap cover itself. With regards to Vehicle Replacement Insurance, the claim limit must bridge the gap between the vehicle ‘market value’ and the replacement cost of the vehicle. Here is the issue, you do not know either of those figures from the outset.
So how do you make sure you are not either under insured or over insured?
Lets look at an example:
You buy a brand new car for £14,000 and you want to take 5 year Vehicle Replacement Gap Insurance on the vehicle. The discount you got to get to £14,000 was actually £3,500, so you really did get a bargain!
Now four years on the vehicle is lost in an accident, and your insurer deems the vehicle a ‘total loss’ with a retail replacement value of £6,000.
The equivalent new car, same model and specification is now available for £18,000. This is because the manufacturer such as BMW has updated the model, and VAT has risen by 2.5%.
So to replace the vehicle for the equivalent new one would require your VRI Gap Insurance policy to bridge a difference of £12,000 (£18,000 minus £6,000).
Gap Insurance Claim Limit
You would require a claim limit of £15,000 to cover this with most policies on a Vehicle Replacement basis. Consider also that a £15,000 limit is actually higher than the purchase price of the original vehicle and you can see why the claim limit is a very important consideration when choosing VRI Gap.