What is gap insurance?

If you’ve bought a new car recently there’s a good chance you will have been offered gap insurance by the manufacturer or dealership.
car-insurance-policy
You may have even been wrongly talked into buying it, but all that has changed – here’s why…

What is gap insurance?

Guaranteed asset protection – ‘gap’ insurance – is designed to make up any shortfall between the current value of a car and the full cost of replacing the vehicle or paying and outstanding finance. Say you buy a new car for £20,000. As soon as you leave the showroom, its value plummets, not least because you’ll have paid VAT on it at 20%. So if you have an accident on the way home and the car is written off, your insurer is going to pay you £16,000 a most – and probably considerably less. So it’s not difficult to see why people take out the extra cover, especially as almost 70% of new cars are bought on finance arrangements. The problem is, dealers and manufacturers have cornered the market, providing cover for 97% of car buyers, which means customers are not shopping around for the best deal. And so the Financial Conduct Authority has stepped in with measures to help make sure customers aren’t pressured into taking the first deal they’re offered.

What are the new gap insurance rules?

The Financial Conduct Authority (FCA) has introduced new rules around gap insurance after concerns about the ‘add-on’ price of cover and the dominance of the market by manufacturers and dealers. The amendments, which took effect from September 1, are designed to offer consumers more protection and additional time to shop around for the best deal. This means gap insurance can no longer be sold at point of sale, and anyone selling gap insurance must clearly and accurately describe in writing exactly what the product offers. Once the customer has this information there must then be two clear days between when the information has been provided and the gap insurance can be sold to the consumer, unless it’s the consumer who initiates the sale. So, if you were to buy a car on Saturday and be given all the information you need on gap insurance the same day, the insurance provider can’t get back in touch with you until the following Tuesday. You can, however, contact the insurer and take out cover at any time. If you want to read the rules in full, go to fca.ork.uk David Gerrans, managing director of Warranty Direct, said: “There’s no doubting the rule changes are already having an impact – there’s strong demand for gap products and consumers are now empowered sufficiently to go out and do their own research. “While the overall size of the market is likely to shrink, this is only because consumers will ultimately be paying less for the same level of cover. The market will feel much more balanced towards consumers when dealers and third party providers account for roughly 50% of the market each.” So the message is clear - shop around for the best deal.

Did you enjoy that? Why not share this article