What is GAP Insurance and Its Advantages

Posted on: Jun 8, 2022 | | Written by:

What is GAP Insurance and Its Advantages

Car owners usually take a lot of care when it comes to their cars. From regular maintenance to cleaning the vehicle to driving it safely on the roads. However, there are times when even your utmost care might not be enough. Because there are a lot of other people on the road, the chances of meeting with an accident of any sort are high. Thus, a car insurance policy along with your care is an ideal combination.

GAP Insurance

GAP insurance or guaranteed asset protection is optional coverage for a car insurance policy that is not available in India. It works best when it is bought in conjunction with collision insurance or a comprehensive insurance policy. The coverage comes in handy if your car is stolen or is totalled during an accident.

The value of a car depreciates every year. In fact, depending on the model the value of a car might depreciate by as much as 20% in the very first year. In such cases, if your car is stolen or totalled, the insurance company will only pay the depreciated amount of the car. If your car is on a loan or lease, there might be a difference between the amount that you owe versus the amount that your car insurance provider pays you.

This is where the GAP insurance policy comes into the picture. It provides coverage when your loan balance or lease balance is more than what your car is worth at the time of being stolen or totalled. You might have a collision or comprehensive insurance, but the maximum compensation that they offer is the current value of the car.

There will be a difference between the current value of the car and the price at which you bought it, due to depreciation. However, if you have gap insurance, it covers the difference between the current value of your car and the amount that you owe.

Return to Invoice

Though GAP insurance is not available in India, we have coverage that is similar to gap insurance. You can opt for a return to invoice as an add-on to your existing comprehensive car insurance policy. Return to Invoice or RTI is an extremely useful add-on that you must consider for a variety of reasons.

In the unfortunate event that your car is stolen or is damaged beyond repair, the RTI cover will come in handy. When you claim your RTI cover, the insurance company will compensate you with the original value of the car. It is the invoice price that you had paid to drive the car out of the showroom and not the current price of the car, which includes depreciation.

For example, if your car is stolen and the police are unable to recover it, you would want to claim your car insurance policy. There are multiple possible scenarios. If you do not have any insurance, it is a total loss and you cannot expect anything.

Similarly, if you have third party insurance, you will not receive any compensation. However, if you have comprehensive car insurance, you are entitled to compensation. But the compensation isn’t the actual value of the car but the current market price of the car, adjusted to depreciation.

The best-case scenario is if you opt for an RTI or return to invoice cover. In such cases, the insurance company will pay the invoice price of the car. Thus, you receive the exact amount that you had paid to buy the car and depreciation does not eat into your compensation.

How Does RTI Work?

Insurance companies always refer to the IDV or insured declared value of the car for compensation of any kind. If your car is beyond repair or is stolen, the IDV of your car is the maximum amount that you will receive from your insurance company. And in quite a few scenarios the IDV of the car might be lower than the invoice price of the car. Majorly in older cars due to higher depreciation rates. You can entirely avoid this difference in compensation by opting for RTI or returning to invoice cover.

In simple words, if your car gets stolen or is beyond any possible repair, you will receive the on-road price of the car.

RTI Cover Cost

Since it is an add-on, you need to pay an additional premium to add its features to your existing comprehensive policy. The premium cost for adding an RTI cover would largely depend on the car model and its current age. You can visit the websites of online insurance aggregators to view the possible premiums for an RTI cover. In general, the premium for RTI cover is about 10% higher than the premiums of a comprehensive car insurance policy.

Advantages of RTI Cover

Adding RTI cover to your policy can bump up the policy premiums by a small margin. However, it brings in a host of benefits along. The following are some of them.

● Better Coverage

Adding an RTI add-on simply increases the coverage of your car insurance policy. It also offers much better security as compared to a plain car insurance policy.

● Theft Coverage

The add-on offers much better coverage for stolen cars. You can get complete peace of mind, knowing your car is secure and you will receive the maximum compensation possible.

● Another Similar Car

If your current car meets with an accident and the damages are beyond repair, you are entitled to receive the invoice price of the car. With the amount, you can go ahead and buy another car in a similar price range.

● Ideal for New Cars

The cover is ideal for new car owners if the damages are beyond repair. The moment you drive your car out of the showroom, its value depreciates. Thus, RTI cover is ideal for new cars and people who are still learning to drive.

● Total Damage Protection

The add-on ensures that you receive compensation that is close to the invoice of the car in the event of total damage. Thereby offering better protection.

● Own Damage

The coverage of the RTI add-on is valid for the damages that your car incurs. It is not valid for third party cars.

You can only opt for an RTI add-on if you have a comprehensive carinsurancepolicy. And given the immense number of vehicles on the roads, it makes even more sense to opt for a car insurance policy. More vehicles essentially increase the chances of incidents on the roads. Opting for an RTI add-on along with your comprehensive car insurance is an ideal choice to offer the ultimate protection to your car. Not to forget the complete peace of mind that you receive along with it.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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