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Is it better to purchase Gap Insurance from your motor dealer, or buy it from an independent provider online?
This is a question many vehicle buyers will ask. Here we give you the low down on the pros and cons of each route.
To begin with, Gap Insurance (Guaranteed Asset Protection) was originally conceived as a way to help car buyers recoup the difference between what they paid for their new car and the amount the car insurance policy would payout if your car was written off in an accident, fire, theft or flood within a specified period.
The process of buying a car from a motor dealer may involve the introduction of Gap protection products from the motor dealer. Motor dealers have been offering these types of insurance products for many years. However, in the last decade or more, a strong and independent Gap Insurance market has evolved online.
The question many consumers ask is:
There can be several differences between the Gap Insurance you are offered at the motor dealers, compared with the types of Gap products you can buy online.
These include:
The first thing you may notice when comparing Gap Insurance policies from the dealer and online providers is the price difference. It is expected that Gap Insurance products from motor dealers come at a far higher premium than you would find with an online provider, for a similar cover.
But why is this the case?
Firstly the business models between a motor dealership and an online Gap Insurance provider can be very different. When you buy a Gap Insurance policy through the motor dealer, that is considered an 'add-on' sale. This means Gap Insurance is sold on the back of the sale of a motor vehicle.
You see motor dealers can only sell products like Gap Insurance to a customer who buys a car from them. This means they will probably only sell small numbers of Gap Insurance policies.
This can lead to two issues. The car dealership will not provide enough business for an insurer to do a deal with them directly for Gap Insurance provision. The car dealer will probably need to sign up to a collective Gap Insurance scheme through their manufacturer, finance company or dealer group. This can add a further level of costs to the policy premium.
The second issue with selling only a small number of Gap Insurance products is that motor dealers can expect to take a larger commission from each sale, just to make it worth their while providing the cover. Again, this can add to the Gap Insurance cost to you.
As Gap cover is an 'add-on' product at a car dealership, you can find they only provide one type of Guaranteed Asset Protection (Gap) cover as a 'one sized fits all' solution.
This normally comes in the form of a Return to Invoice Gap insurance policy. This looks to get you back to the price you originally paid for the vehicle if it is written off by the car insurance provider.
There is nothing wrong with Return to Invoice Gap Insurance at all. However, there are different types of Gap Insurance that could, depending on the circumstances of your purchase, be a better option. For example, where you buy a new car at a discounted price, the option to cover a potentially higher replacement cost in the future, rather than the original price you paid, could be a better option. A Vehicle Replacement Gap Insurance policy would provide that level of cover. They are rarely offered by motor dealers.
The third issue that will normally impact and provide higher premiums at the motor dealers is the rate of Insurance Premium Tax that is charged. Insurance Premium Tax (IPT) is the tax you pay when you buy an insurance product in the UK.
The standard rate of IPT in the UK is currently 12%. This is what you would pay for your house insurance, car insurance or indeed Gap Insurance from an online provider.
If you buy Gap Insurance from your motor dealer, you pay the higher rate of Insurance Premium Tax (currently 20%).
This would mean that you effectively pay an extra 8% in tax if you choose to buy Gap Insurance from the motor dealer you are buying the car from.
How does this make a difference? Well, if your Gap Insurance policy cost £300 for the policy term, (and assuming the standard rate of 12%) you would be paying an extra £24 tax by buying Gap Insurance from your dealer.
In reality, the higher tax costs are only part of the reason for the difference between your motor dealer and an online provider. Often you can see the overall cost being hundreds of pounds more expensive from the dealer.
It is a common misconception that you can only get Gap Insurance from the motor dealer who is providing the vehicle. It is also often thought that the price offered at the motor dealer must be the standard price for Gap Insurance cover.
Both assumptions are wrong.
You can purchase Gap Insurance from any number of online providers. Some are specialist Gap Insurance brokers, some may be more general insurance brokers who you get your comprehensive car insurance policy through. You can even get Gap Insurance cover from Credit Company's who provide you with your finance agreement for the vehicle.
You are not tied to the motor dealer. By comparing Gap Insurance quotes from a range of providers, you should be able to identify the most suitable type of Gap Insurance for you, at the best premium.
Gap Insurance can range in price depending on a number of things. The type of Gap Insurance policy you choose is certainly important. Return to Invoice Gap Insurance will be cheaper than Vehicle Replacement Gap Insurance. This is because VRI could offer more protection should your insurer write off your vehicle, and the equivalent replacement is more expensive than your original purchase price.
As mentioned above, the rate of IPT also has an impact on the cost of your Gap Insurance. This can range from 12% to 20% in additional tax when you buy Gap Insurance from a motor dealer, compared to the standard rate of 12% when you buy online.
In general, you will find cheaper gap insurance prices online.
The purchase price of the vehicle you are insuring will also impact the cost of your Gap Insurance policy. The more expensive your vehicle is the more the potential depreciation and therefore the more the Gap Insurance will payout. Higher price vehicle means a higher-priced premium normally.
The length of cover you take will impact the cost of Gap cover too. The longer you wish to take cover for (up to 5 years is certainly available online), the more the vehicle can lose in value. This will increase the potential payout in a claim, so the initial premium will be higher to cover this increased risk.
You may find that many Gap Insurance products automatically exclude certain vehicle uses, as they may be deemed a higher risk.
These may include:
However, another benefit of checking online for Gap cover is that these types of vehicle uses can often be covered but at a higher cost.
The range of cover available does depend on which provider you choose, but types of Gap protection may include:
No, you normally have to take out Gap protection within a set timeframe of buying (or leasing) the vehicle. This can range from 30 days to a maximum of 365 days for a brand new car.
There can be one exception to this rule. Some online Gap Insurance providers have an option of Agreed Value or Return to Value Gap protection. This is slightly different as the value you can protect is based on the value of your vehicle on the day you take the cover out, not the original price you paid.
If you think about that statement, it is quite something to say when you consider there could be hundreds of Gap products available online. How would the car dealer know each and every alternative product in order to be able to make that statement?
That said, Gap products can vary in their features, so it is important to compare to see if you are looking at an equivalent cover, or not.
The truth is that motor dealers often get their Gap products from the same sources as the online providers. There are a few, specialist insurance underwriters in the field that provide the majority of cover in the marketplace.
Motor dealers have a hard time explaining why the Gap products they promote are so much more expensive than those found online. Simply saying theirs are 'better' seems to be a widely used statement, without ever offering evidence as to why.
We have heard even more concerning reasons given as to why motor dealer Gap products are better than those found online.
These include:
And we have heard much more outlandish reasons given to consumers than these. They just give you a flavour.
They may sound plausible reasons but ask yourself, how would a motor dealer know if a customer was not paid out? They would have to have found evidence of these claims somewhere. Ask them to provide it.
In reality, Gap products are underwritten by a small number of insurers. The policy terms are often very similar, whether the insurance is purchased from the motor dealer or online.
The basis of the cover is the same. The vehicle you buy will normally lose value. Your car insurance provider will normally cover you to the then, current market value of the vehicle is written off or stolen. This may leave you needing to pay off outstanding finance or have to fund some of the costs or a replacement vehicle yourself. Gap Insurance covers some, or all of these financial requirements, depending on which type of cover you choose initially.
Whether you get Gap Insurance from your motor dealer, or from an online provider, make sure your choice is based on facts, compare cover and decide which is giving you the best value for your circumstances.
There are a few ways you can access a Gap Insurance quote and cover online, for both new and used cars.
Firstly you can simply go directly to a number of specialist Gap providers. For example, ones operated by our company, Aequitas Automotive Ltd include:
There are more available with a simple Google search.
Next, you can look if your car insurer provides Gap as an 'add-on' product. You may find a motor insurer may not offer Gap cover separately often, but it is still worth checking.
You can find some of the Consumer Comparison websites that may have a panel of Gap Insurance providers listed or advertised also.
It is important that you make certain checks before you commit to buying a Gap product from an online provider or your motor dealer.
Check the company is authorised and regulated by the Financial Conduct Authority FCA. You can do this by checking the company on the Financial Services Register.
When you search the firm, check they have a valid Firm Reference Number (FRN).
Check the policy terms and conditions to see what the insurance covers. Make sure the terms are suitable for what you need.
Also, consider if you need Gap Insurance. For example, if your car insurer offers a new car replacement cover (on brand new cars, of the vehicle is written off the car insurance settlement may give you a brand new car as a replacement), and you are not going to keep the car long then you may not need Gap Insurance.
Check all the details of how to make a Gap Insurance claim is clear. You should have the contact details of your Gap Insurer stated, or their nominated claims team.
You should ensure the process is straightforward because should your car be written off the method of getting your motor insurer's settlement and a gap settlement is important for you to secure a replacement car, or pay off the outstanding finance balance for the car you originally paid for.