We hear these stories from our customers pretty much every day and we thought we would share this typical example with you to highlight how risky it can be to accept your dealers Gap Insurance.
A customer told us he was buying a new prestige car on a 4 year PCP (Personal Contract Plan) finance agreement. The ‘on the road’ price of his new car was £36,500.00 (after a special discount of £5,000) and at the end of the finance plan the finance company required a payment of £13,870.00 if he wanted to keep the car. This is the finance company’s forecast of the vehicles approximate value at the end of the 4 year period.
We did this simple calculation to calculate how much Gap Insurance cover the customer needed to consider;
Vehicle purchase price £36,500.00 minus the lenders forecast value at end of the finance agreement of £13,870.00 = potential depreciation of £22,630.00. Not a difficult calculation – just common sense.
This customers dealership advised that he should purchase a 3 year £15,000.00 level of cover ‘Return To Invoice’ Gap Insurance for £599.00.
The ONLY thing this dealership did right was to suggest Gap Insurance in the first place. What they did wrong was;
> They offered a 3 year period of cover when the customer intended to keep the car 4 years, leaving him unprotected in the 4th year,
> They offered a £15,000.00 maximum claim limit when the lender is forecasting £22,630.00 in depreciation,
> They offered a Return To Invoice Gap Insurance when the likelihood is the cost of a replacement in year 2, 3 and 4 will be substantially more than £36,500.00 due to price increases, model changes, reduced discounts etc.
> They tried to make a substantial profit out of this customer – possibly up to £450 profit!
Not only would the customer have been inadequately covered by an inappropriate policy for a year less than he needed it – he would have been spectacularly overcharged.
After talking through his requirements with us the customer purchased a ‘Vehicle Replacement‘ Gap Insurance from us for a 4 year period with no claim limit for just £299.00 – a 50% saving for a policy that will pay for a replacement even if the cost of a replacement is more than he originally paid (not limiting itself to the original invoice price like the dealers policy) and for a year longer.
That is why we suggest there are dangers and risks involved in buying Gap Insurance from your dealer. They are motor dealers, not specialist insurance brokers.
If you have a similar story, please let us know – we would love to hear from you.
Please feel free to call us on 01438 870615 or email us at [email protected] We promise no sales techniques or pressure – just friendly explanations and prices.
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