Why you shouldn't take out GAP insurance from your motor dealer

Thinking of Buying GAP Insurance From Your Car Dealership? Here's Why You Should Reconsider...

One thing that makes buying a car from a dealership stressful is that the salesperson will often encourage you to take out every add-on they offer. This might include things like paint protection, a service plan and, of course, GAP insurance. Before you know it, you could be leaving the showroom having agreed to spend an extra £1,000 or more!

But while some of these products may be worth considering, there's no reason to assume that buying them from your dealership is the best option.

GAP insurance is a particularly good example. Comparable policies are available from independent online providers (like us), often at considerably lower prices. And buying your cover separately doesn't necessarily mean compromising on the protection you receive.

So, should you buy GAP insurance from your car dealer? Not without shopping around first. Dealership GAP insurance can be more expensive than an equivalent policy purchased independently, and there's no guarantee that paying more will get you better cover.

Here's what you need to know before agreeing to anything.

Read More: Can I Buy Gap Insurance Privately?

Motor Dealers Must Tell You About Alternative GAP Insurance Providers

The UK GAP insurance market is regulated by the Financial Conduct Authority (FCA), whether you're buying your policy through a dealership or an independent online provider.

Back in 2015, the FCA introduced rules designed to give motorists more time to consider their options and prevent GAP insurance being sold as just another add-on during the car-buying process.

Under the FCA's GAP insurance rules, motor dealers must:

1. Give you time to consider your purchase. Generally, at least two clear days must pass after the required information has been provided before the dealer can conclude the sale. There is an exception allowing a sale the following day if you initiate it and expressly agree to proceed earlier.
2. Make it clear that GAP insurance is optional. You are not legally required to purchase GAP insurance when buying a vehicle, whether you're paying cash or using finance.
3. Tell you that other providers are available. The dealership must explain that GAP insurance can be purchased elsewhere, giving you the opportunity to compare prices and cover.
4. Explain the cost and key policy terms. This includes the total premium, policy duration, significant benefits, exclusions and limitations.

These rules were introduced for a reason. Motorists need to understand what they're buying rather than simply agreeing to another expense.

If your dealer tells you that you must purchase their GAP insurance to complete your vehicle purchase or secure finance, you should challenge that claim.

And if you're being pushed to make a decision before you've had the opportunity to compare policies, there's no reason you can't say you'll think about it.

Can Dealer GAP Insurance Policies Be Better?

A branded GAP insurance policy from your motor dealer may feel like something to be confident in. After all, you've just spent thousands of pounds on a vehicle, so buying insurance from the same dealership might seem like the obvious choice.

You may even be told that it's better to keep everything with one company.

However, dealership GAP insurance is generally underwritten by a separate insurance company. The dealership sells the policy, but it isn't necessarily the business responsible for providing the cover or settling a claim.

Independent GAP insurance providers also work with insurers, so the important thing is to understand who actually underwrites the policy and what protection it provides.

A dealership policy might offer suitable cover, but that doesn't automatically make it better than one bought online.

When comparing policies, look at the actual benefits rather than the name on the paperwork. In particular, check:

• The type of GAP insurance being offered and whether it's suitable for your vehicle.
• The maximum amount the policy will pay following a total loss.
• Whether the policy covers your motor insurance excess.
• Any restrictions on the age, value or mileage of your vehicle.
• Whether the policy can be transferred or cancelled if you sell the car.
• Who underwrites the policy and who handles claims.

It's also worth checking whether the dealership is offering Return to Invoice or Vehicle Replacement GAP insurance, as these provide different types of protection.

Neither is automatically the better choice. It depends on your vehicle, how you purchased it and what you'd want to happen if it were written off.

You can find out more about the options in our GAP insurance guide.

What About Paying Monthly?

Dealerships sometimes promote the convenience of adding GAP insurance to your vehicle finance agreement.

It can sound appealing. Rather than paying separately for insurance, the cost simply becomes part of your monthly car payment.

But there's something worth considering here.

If the GAP insurance premium is added to your finance agreement, you could end up paying interest on it.

For example, a £400 GAP insurance policy added to a finance agreement could cost more than £400 by the time you've finished making your repayments, depending on the interest rate and agreement terms.

That doesn't mean paying monthly is always a bad idea. It simply means you should compare the total amount payable, rather than concentrating on the monthly figure.

Why Are Dealership GAP Insurance Policies So Expensive?

The answer often comes down to how GAP insurance is sold.

When you purchase GAP insurance through a dealership, the price may include commission paid to the business selling the policy, alongside the underlying cost of insurance and other expenses.

There's nothing inherently wrong with a business earning commission. The question is whether the customer is getting fair value for what they're paying.

Independent online providers don't have the same dealership sales process, and this can help them offer more competitive premiums.

At Direct Gap, we specialise in providing GAP insurance directly to motorists, allowing customers to compare suitable cover without relying on the policy offered in the showroom.

How Much Could You Save by Buying GAP Insurance Online?

The potential difference is easier to understand when you look at the total cost of a policy.

Here's a simple illustration of what two GAP insurance quotations might look like:

These are illustrative prices, not live quotations or a verified market average. Actual premiums and cover will vary depending on the vehicle, policy and provider.

In this example, choosing the independent policy would save £250 before considering any additional interest that might apply if the dealership premium were financed.

Of course, the cheaper policy isn't necessarily the better one. You should check that both policies provide comparable cover, including claim limits, exclusions and other important conditions.

But if the cover is suitable and the benefits are comparable, why pay considerably more simply because one policy is being sold alongside your new car?

Read More: Which Gap Insurance Policy Is Right For Me?

What Should I Be Looking Out For?

It's not uncommon for dealership staff to encourage customers to purchase their GAP insurance rather than using an online provider.

You might hear that an independent policy won't offer the same protection, that making a claim will be more difficult or that it's safer to purchase everything from the dealership.

There may be genuine differences between individual policies, so it's worth listening to any specific concerns. However, broad claims about online providers being inferior shouldn't be accepted without evidence.

The important thing is to choose an established provider offering appropriate cover from a reputable insurer.

Check Who Underwrites the Policy

Whether you're buying from a dealership find out which insurance company is actually providing the cover.

You can check the regulatory status of the business selling the policy using the FCA Financial Services Register.

Don't assume that a familiar dealership name means the insurance is underwritten by the vehicle manufacturer.

Don't Forget About Your Existing Motor Insurance

Before taking out GAP insurance, check what your comprehensive motor insurance already provides.

Some motor insurers offer new-for-old replacement cover during the first year of ownership, particularly for qualifying new vehicles.

If your existing policy would replace your vehicle with a new equivalent following a total loss, you may not need overlapping GAP cover for that period.

However, these benefits often come with conditions, and not every motor insurance policy includes them.

Some GAP insurance providers offer deferred start dates, allowing cover to begin after an initial period of qualifying new-for-old protection.

It's worth checking these details before buying, rather than discovering later that you've paid for protection you didn't need.

Watch Out for High-Pressure Sales Tactics

A good insurance provider should be happy to explain what a policy covers, what it excludes and how much it costs.

Be cautious if you're told:

• You can only buy GAP insurance from the dealership.
• Your finance agreement depends on purchasing the dealer's GAP policy.
• You must make an immediate decision without comparing alternatives.
• Every online GAP insurance policy is inferior to the dealership's cover.

If you're unsure about anything, ask for the policy wording and Insurance Product Information Document (IPID) so you can review the details in your own time.

Remember, you're purchasing insurance to protect yourself against a financial loss. It's worth taking a little time to make sure you're buying the right product.

Read More: Be more buyer savvy, here's the most common Car Sales Tactics Explained.

Is It Worth Buying GAP Insurance From a Dealership?

There's nothing to stop you from buying GAP insurance from your motor dealer if the policy offers suitable cover at a competitive price.

However, there's also no requirement to purchase it from the same business that sells you the car.

For most motorists, the sensible approach is to obtain a dealership quotation and compare it against one or two independent providers.

You may find that the cover is similar but the price is significantly different.

You may also discover that an independent provider offers a policy more closely suited to your circumstances.

And remember, GAP insurance itself isn't essential for every driver.

If you could comfortably afford to replace your vehicle or settle any outstanding finance following a total loss, you might decide that the additional insurance isn't worthwhile.

On the other hand, if a substantial difference between your car's market value and its original purchase price or finance balance would cause you financial difficulty, GAP insurance could provide valuable protection.

The decision should come down to your individual circumstances, the cover available and the price you're being asked to pay.

Frequently Asked Questions About Dealership GAP Insurance

Can I Buy GAP Insurance Somewhere Other Than the Dealership?

Yes. You can purchase GAP insurance from an independent provider rather than the dealership where you bought your vehicle.

The dealer must make you aware that other providers are available, and you are free to compare quotations before deciding.

Is Dealership GAP Insurance More Expensive?

It can be. Dealership GAP insurance may include sales commissions and other distribution costs, which can contribute to higher premiums.

However, prices vary between providers, so it's important to compare actual quotations for similar levels of cover rather than assuming one option will always be cheaper.

Do I Have to Buy GAP Insurance From the Dealer if My Car Is on Finance?

No. GAP insurance isn't a legal requirement, and you don't have to purchase it from the dealership simply because your vehicle is financed.

If you have a PCP, HP or other finance agreement, check which type of GAP insurance is suitable and whether there are any relevant contractual requirements.

Can I Buy GAP Insurance After I've Collected My Car?

Yes, many providers allow you to purchase GAP insurance after taking delivery of your vehicle, although eligibility periods vary.

It's best to check the purchase deadline before assuming you can leave the decision indefinitely.

Can I Cancel GAP Insurance Bought From a Dealership?

You may be able to cancel your dealership GAP insurance, although the refund available will depend on when you cancel and the policy terms.

Insurance policies generally provide a statutory cancellation period, with applicable refund arrangements, but cancellation after that period may be treated differently.

If the premium was added to your car finance, ask how any refund would be applied to your agreement.

Check the cancellation terms before purchasing, particularly if you think you may sell or replace your vehicle before the policy ends.

Contact a Trusted GAP Insurance Provider for Advice

Don't make any decisions about GAP insurance lightly. It isn't a legal requirement, and you shouldn't feel pressured into buying a policy simply because it's being offered alongside your new car.

A dealership policy may be perfectly suitable, but that doesn't mean it's the best value available.

At Direct Gap, we specialise in providing GAP insurance directly to customers, with a range of options to suit different vehicles and finance arrangements.

If you're unsure which type of cover you need, contact our team and we'll be happy to explain the options.

Alternatively, you can get a GAP insurance quote online and compare the cost against your dealership's offer.

You might be surprised by how much you could save.

After all, buying a car is expensive enough without paying more than you need to for the insurance.