New rules encourage buyers to shop around before they purchase add-on Guaranteed Asset Protection insurance.
The Financial Conduct Authority (FCA) has published new guidelines which will ensure car buyers get a better deal when buying add-on General Asset Protection (GAP) insurance.
General Asset Protection insurance covers the ‘gap’ when a vehicle is written off or stolen and the insurance payout isn’t enough to cover the cost of replacing the vehicle or any outstanding finance owed on it.
From 1st September 2015, companies selling GAP insurance in connection with the sale of a vehicle will have to give buyers far more information in order to help them shop around and get the best possible deal.
This includes:
- The total premium of the add-on GAP insurance policy, separately from other prices;
- Key features and benefits, significant and unusual exclusions or limitations and cross references to the relevant policy document provisions;
- The fact that GAP insurance is sold by other distributors;
- The duration of the policy;
- Whether or not the policy is optional;
- When the GAP insurance contract can be settled by the firm, including the date which the required information was provided. This lets the buyer know how much time they have to decide on the policy.
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Why is the FCA introducing the new rules?
The FCA’s report found that 59% of people who bought the insurance as an add-on hadn’t thought about buying it until the day they got their car. Furthermore, almost half of them reported being unaware that they can buy it at any other time than the point of sale. Of this group, only 19% said they shopped around.
[SPOTLIGHT]This is particularly significant as add-on insurance is typically more expensive than its standalone counterpart. Only 10% of retail premiums for add-on GAP sales are paid out in claims. That’s £10 for every £100 in premiums. This is a very low claims ratio compared to other insurance products.
Buying GAP insurance
There are a few things to consider when buying GAP cover. Firstly, if you have a vehicle which is less than 12 months old and your provider supplies ‘new car replacement’ for that initial period, have a look elsewhere for cover that comes with a deferred start date.
Check the criteria of claim settlements including excess and how the vehicle will be valued in case of loss. A lot of GAP policies aren’t renewable so you’ll only be able to insure your car once.
When choosing your policy, look out for maximum level of cover, maximum value of your vehicle, the length of time you want to take out cover for and the age of the vehicle you want to cover.
You may not need GAP insurance if you’re already covered by a suitable finance agreement that will pay out the difference between the official value of your car and how much you paid.
Bear in mind that you’ll only get the GAP money if your insurance is fully comprehensive, your car has been labelled as unrecoverable or you’ve made a successful claim and everything is settled.
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