GAP Insurance Jargon Buster: Key Words and Phrases Explained

Who’d want to invest in something when they don’t fully know or understand what it is?

Published: 10th October 2017

Insurance shouldn’t be a complicated matter but for many new and existing drivers the terminology used can get a little confusing and off-putting.

Who’d want to invest in something when they don’t fully know or understand what it is? With GAP insurance this can happen when many technical and unfamiliar terms are used.

While we try to speak and write in the most understandable way, there is still a lot of terminology and jargon used when GAP insurance is explained. This jargon buster helps get GAP insurance explained in everyday language along with other common words and phrases.

Comprehensive Car Insurance

Also referred to as fully comp cover, comprehensive car insurance is the highest level of insurance. This covers damage to your car that could be deemed your fault, that’s not the result of a collision, as well as damage to other vehicles. This provides more protection than third party insurance, which only covers damage to other vehicles and not your own.

GAP Insurance

What does GAP insurance cover? Well, when you buy a vehicle, it will start to depreciate (fall) in value. Should your car be written off or stolen then your insurer will pay out the amount your car is worth at that time. If you’ve owned the same car for a few years, this will be far less than what you originally paid for it. ALA GAP Insurance covers the shortfall, the amount lost between what you initially paid for it and the insurance pay out.

Outstanding Finance

With a GAP insurance policy, it can cover vehicles which are purchased either outright or on finance, or leased. When leasing a vehicle, outstanding finance refers to the amount left to pay on your contract. For example, if you have a three year lease but your car is written off after only two years, this covers the costs of the remaining year.

With vehicles bought on finance, your insurer might not pay you enough to clear the outstanding balance. The BTI or VRI GAP insurance pays the difference up to the invoice price or replacement vehicle cost (depending upon which policy you choose). This makes sure that the finance can be cleared and any amount remaining can be used as a deposit on your next car.

Premium

Usually used in the term ‘GAP insurance premium’, this refers to the amount paid for GAP insurance. Premium is essentially another word for cost or sum, detailing the exact amount GAP insurance will cost for your car.

Pro Rata Transfer

Pro rata means proportional. Therefore, a pro rata transfer refers to a proportional amount being transferred. If you have taken out GAP insurance and changed your car before the cover has ended, a pro rata transfer refers to the amount of unused premium left. This can either be sent to your bank account or transferred over to go towards the GAP insurance premium for your new car.

Shortfall

Shortfall is the difference in value that a vehicle has lost between its point of purchase and the time it makes an insurance claim. This amount is what is covered by GAP insurance and any pay outs, should a vehicle be written off. The amount will vary depending on the vehicle, the time and other factors.

Total Loss

A total loss is the judgement by an insurer that the repair costs or lost value admitted to a car exceed the value of its policy. This means that the full value of the car at the time of it being classified as a total loss will be paid out. There are many things that can result in a total loss:

  • Stolen vehicle
  • Car crash
  • Fire damage
  • Flooding
  • Vandalism
  • Underwritten

If something is underwritten then liability is signed for and accepted, guaranteeing payment if damage or total loss occurs. With ALA GAP Insurance, policies are underwritten by UK General Insurance Limited, for example, which means they accept the liability, within the terms and conditions, for every GAP insurance policy purchased with ALA.

Warranty

All new cars come with a warranty. A warranty is an insurance policy that covers mechanical and electrical faults with the vehicle, ensuring the manufacturer will meet the cost of any such repairs. Most offer warranties that last up to three years or 60,000 miles, though some are more generous.

Write Off

A write off is similar to a total loss, in that it is deemed too costly to repair. The main difference is that a write off can also be a vehicle that is unsafe to put back on the road. Total loss can refer to vehicles that have been stolen as well, whereas a write off is usually only those damaged in an accident, flooding or fire.

With GAP insurance explained along with a lot of jargon and terminology that surrounds it, hopefully you’ll find understanding any GAP insurance policy a lot easier in the future.

*Disclaimer: This is a concise guide to common terms surrounding GAP insurance. For more detailed information check out our FAQs and further GAP insurance policy information.

Published: 10th October 2017
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