Why Gap Insurance is expensive in the Car Showrooms?
Why is Gap Insurance more expensive in the Car Showroom?
As part of any vehicle purchase process from a motor dealer, there is a process that the sales staff will follow. This will include the offer of dealer finance packages, a range of manufacturer and dealer accessories and also a number of 'protection' products that may include:
- Paint and Fabric Protection - Examples of these would be well know showroom brands such as Lifeshine by AutoGlym, Supagard, Diamond Brite and GardX. These products offer a sealant protection for your paintwork and interior upholstery fabrics.
- Gap Insurance - Or Guaranteed Asset Protection, Shortfall Insurance and many other names. This is a financial protection to cover any shortfall in value if the vehicle becomes a write off due to accident, theft or fire.
- Tyre Insurance - This can cover the cost of repairing or replacing any tyre if it is damaged by accident or maliciously.
- Alloy Wheel Protection - A product that can cover the cost of repairing any scuffs or scrapes you may get on your alloy wheels.
- SMART Insurance - Can be known as Scratch and Dent cover also. An insurance to cover the cost of any small cosmetic repairs on your vehicle, such as stone chips or car park dents.
- Key Insurance - An insurance to cover the cost of replacing keys, or locksmiths charges, should your keys be stolen or end up lost.
- Motor Excess Insurance - If you have an excess on your motor insurance policy, this can provide financial cover for this if you have a claim.
- Helmet and Leathers Insurance - For motorbike owners, you can get a protection product that can cover the cost of repair or replacement of these items in the event of an accident.
Of course, not all of these types of insurance products are offered by motor dealers, but common ones would be the likes of Paint and Fabric Protection, Gap Insurance, Tyre Insurance and SMART Cover. Of course in this day and age, the motor dealer is no longer the only place where you can buy many of these products. Many independent insurance providers and brands now exist that can offer alternative protection, and when you compare the products with the car dealers there is often a common difference................THE PRICE! This can be seen in particular in the case of Gap Insurance. A typical 3 year Return to Invoice policy may cost £400 from a car dealer, where an equivalent online price can be as low as £70! That is quite a difference, but what factors contribute to this?
The factors that can contribute to why Gap Insurance is more expensive at car dealers than independent providers
- Insurance Premium Tax - there is no VAT on insurance products, instead, there is a tax called Insurance Premium Tax, or IPT for short. The standard rate of IPT is currently 10%, and this is what online providers will charge. However, the case is different with your motor dealer, as they have to charge a higher rate at 20% (the same rate as VAT on the vehicle sale). This is because the sale of an insurance product and the sale of the vehicle is from the same source, the dealer. That means it is almost always more expensive to buy insurance items from your motor dealer than from elsewhere.
- Supply price from insurance providers - Gap Insurance, like any other insurance, is ultimately provided by an underwriter (an insurer). The price that insurers would charge a 'retailer' of the product is often dictated by the amount of policies they can sell. A motor dealer can only provide Gap Insurance cover to their own customers, and therefore this may translate to a far lower number than an independent insurance broker. The increased volume provided by brokers means they may well get a far better supply price from the insurers, and this can be passed on to the policy purchaser.
- Profit - Everyone will make one, even the online Gap Insurance providers. The difference is that the motor dealer will make all their profit out of the single policy sale. Also included within this may be a commission for the sales person, Business Manager and perhaps even the Sales Manager, plus a profit margin for the dealership. The insurance broker may have a difference supply relationship with the insurer. They may have bonuses linked to product sales, just like the car dealer will have for the volume of vehicle sales with the manufacturer.
So as you can see, when you look at the purchase of any insurance product, especially Gap Insurance, then buying from your vehicle dealer may not be the best way to do it! Growth in Gap Insurance brokers is on the increase, and the premium price may well be the biggest reason for this.