Should I take out GAP insurance?
Like any insurance policy, it is up to you to decide what level of risk you are comfortable with and how much you want to pay to reduce your financial exposure.
GAP insurance pitches, whether from a car salesman or a website, will usually have some kind of scary statistic that “a car is stolen somewhere in the UK every minute!”, or “Car crime makes up a huge percentage of all crime!”. These may be true in isolation, but it doesn’t mean you are at a major risk if you don’t have GAP insurance. Of all cars stolen in the UK, two-thirds are recovered and usually there is little or no damage. If you have a tracking device, the chances of your stolen car being recovered are almost 100%.
The chances of your car being written off or stolen in the next three years (most GAP policies are for three years) are actually very small in the greater scheme of things.
If you do decide to take out GAP insurance, there are plenty of insurers you can go with – DON’T simply go with the dealership’s offer. A car dealership is about the most expensive place on the planet to buy GAP insurance, largely because most buyers haven’t got a clue what it would cost elsewhere because they’ve never looked.
If you are buying a new car, you should also check your comprehensive car insurance policy as you may have a new-for-old replacement benefit for the first 12 months. Some GAP policies will allow you to defer your GAP cover for a year if you have this feature on your car insurance, so it pays to check.
What should I look for in a GAP insurance policy?
The obvious thing is the price. There are plenty of online GAP providers who are much cheaper than a car dealer, so shop around.
The second thing is the cover; what are you getting for your money? Most GAP policies will have a payout limit, so they may not cover what you are expecting. The reason that Provider A is cheaper than Provider B may be that the payout limit is £10,000 instead of £25,000. It’s a bit late to discover that when you are making a claim.
Finally, read the terms and conditions carefully to make sure the policy is suitable for you and your driving circumstances.
Why do car dealers push GAP insurance so aggressively?
That’s easy. It’s because they get a nice fat commission from the GAP insurer for selling the product. Like everything they sell (the car itself, the finance, any extras like warranties or service plans), salespeople and their managers get paid based on how much stuff they sell you. A salesman can often earn more than twice as much commission by adding all the extras on compared to just selling the car on its own.
Often the dealer’s price is more than double the price of an equivalent policy sold online. How do they get away with this? Because customers have often never heard of GAP insurance, or simply don’t take the time to shop around. By the time they get around to talking about GAP insurance, you’ve generally already bought the car and are now being manipulated into paying for numerous extras to “protect your investment” or some such nonsense.
The Financial Conduct Authority (FCA) introduced new laws last year to prevent dealers from selling you GAP insurance on the same day that you buy their car, but plenty of people still don’t take the now-mandated two-day waiting period to explore other providers.
If you are considering buying GAP insurance from the dealership, remember that – like everything they sell – the price is always negotiable. Don’t pay full price, as you could possibly save a couple of hundred quid. Get a quote online before you buy the car (like you should be doing for your car insurance), and if see if they can match it.
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