What is GAP Insurance and Its Advantages

If you have a car, you take great care of it. However, accidents can still happen due to other drivers on the road. Hence, we recommend you have car insurance. In addition to regular maintenance and safe driving practices, car insurance provides financial protection in case of accidents or theft. While car insurance policies offer coverage for various scenarios, additional options, such as GAP insurance and Return to Invoice (RTI) coverage, are available to enhance your coverage. Here, we will explore what GAP insurance is and the advantages it offers.

Meaning of GAP Insurance

GAP insurance, short for Guaranteed Asset Protection, is optional coverage for car insurance policies. It is not currently available in India but gets commonly offered in other countries. GAP insurance works best when purchased alongside collision insurance or comprehensive insurance policies. This coverage comes into play if your car is stolen or deemed a total loss due to an accident.

When a car is purchased, its value starts depreciating immediately. In the first year alone, the value of a car can depreciate by up to 20%. If your vehicle gets stolen or declared a total loss, the insurance company will typically compensate you based on the car’s depreciated value. However, if you have a loan or lease on the car, there may be a gap between the amount owed and the insurance payout.

Here GAP insurance comes in handy. It covers the difference between the amount owed on the loan or lease and the car’s current value. While collision or comprehensive insurance policies provide compensation based on the car’s current value, GAP insurance bridges the gap between the current value and the amount owed, protecting you from financial loss.

Return to Invoice

Although GAP insurance is not available in India, a similar concept called Return to Invoice (RTI) cover can get added to your existing comprehensive car insurance policy. RTI cover proves to be extremely useful in various scenarios.

In the unfortunate event of your car being stolen or damaged beyond repair, the RTI cover comes to your rescue. When you file a claim with RTI cover, the insurance company compensates you with the original invoice price of the car rather than the current market value that includes depreciation.

For instance, if your car is stolen and remains untraceable, a claim on your car insurance policy can have different outcomes. Without insurance coverage, you would face a total loss without compensation. If you have third-party car insurance, you won’t receive any compensation. However, with comprehensive car insurance, you are entitled to receive compensation, but it is based on the current market value of the car, adjusted for depreciation.

The best-case scenario is when you opt for an RTI cover. In such cases, the insurance company will pay you the exact invoice price of the car, ensuring that depreciation does not eat into your compensation.

How Does RTI Work?    

Insurance companies always refer to the Insured Declared Value (IDV) of the car for compensation in case of theft or irreparable damage. The IDV represents the maximum amount you can receive from your insurance company. In some cases, the IDV of the car might be lower than the invoice price, especially for older vehicles with higher depreciation rates. By opting for RTI cover, you can avoid any difference in compensation and receive the on-road price of the car if it gets stolen or damaged beyond repair.

RTI Cover Cost

Since RTI cover is an add-on, you must pay an additional premium to include it in your existing comprehensive policy. The cost of RTI coverage largely depends on the car model and its current age. You can visit online insurance aggregator websites to get an idea of the possible premiums for RTI coverage. The premium for RTI coverage is around 10% higher than premiums for comprehensive car insurance policies.

Advantages of RTI Cover

Adding RTI cover to your policy offers several benefits:

Better Coverage

RTI cover enhances the coverage of your car insurance policy, providing improved security compared to a basic policy.

Theft Coverage

RTI cover provides comprehensive coverage in case of car theft, ensuring you receive the maximum compensation possible and giving you peace of mind.

Replacement for Total Loss

If your car is involved in an accident and the damages are beyond repair, RTI cover allows you to receive the invoice price of the car. With this compensation, you can purchase another vehicle in a similar price range.

Ideal for New Cars

RTI cover is particularly beneficial for new car owners. When a car gets driven out of the showroom, its value depreciates. With RTI cover, you receive the exact amount you paid to buy the car without depreciation affecting your compensation.

Total Damage Protection

RTI cover ensures you receive compensation close to the invoice price of the car in case of total damage, providing comprehensive protection for your investment.

Own Damage Coverage

RTI cover is valid for the damages incurred by your car and does not apply to damages caused to third-party vehicles.

Conclusion

While GAP insurance is not currently available in India, the concept of Return to Invoice (RTI) cover provides similar benefits. By adding RTI cover to your comprehensive car insurance policy, you can receive compensation based on the original invoice price of your car in case of theft or irreparable damage. RTI cover offers better protection and security and helps you avoid the impact of depreciation on your compensation. It is particularly beneficial for new cars and provides peace of mind to car owners. Although it may increase your policy premiums slightly, the advantages of RTI coverage make it a valuable addition to your car insurance policy.