Confusion about insurance is putting drivers at risk of financial shocks if their car is written off after an accident or stolen, new research from award-winning data analytics company Consumer Intelligence shows.
Its nationwide study of motorists found one in three (34%) would expect their insurer to pay out the purchase price of their car if it is written off or stolen while 78% who have bought on finance believe the outstanding loan would be cleared by their insurer or the other driver’s insurer.
In reality car insurance covers the market price of the car at the time of the accident or theft minus any depreciation leaving drivers to fund the shortfall for a replacement.
So-called Guaranteed Asset Protection – or GAP – insurance will pay the purchase price and cover any finance deals but Consumer Intelligence’s data shows just one in eight (12%) drivers took it out when they last bought a car.
The risk is real – around one in five (19%) drivers questioned said they’d claimed on insurance after a write-off or theft and industry estimates show around 89,000 cars are stolen a year in England and Wales with around 384,000 written off a year in the UK.
The impact of depreciation on a car’s value is significant – on average cars with an annual 10,000 mileage lose 60% of their value after three years and new cars lose 20% of their value instantly because of the VAT effect.
Consumer intelligence’s study found just 10% of drivers bought GAP insurance from their car dealer and only 2% bought it independently. A major reason for not buying it from dealers was that drivers believe GAP cover is over-priced.
John Blevins, Consumer Intelligence insurance pricing expert said: “It is worrying that so many drivers are confused about what their insurance will cover in the event of a write-off or theft and particularly for those who have bought their car on finance.
“It is bad enough to suffer a theft or a write-off but having to also deal with financial worries about getting a replacement in the aftermath adds to the pain.
“GAP insurance can be very valuable, and it is a pity that motorists are put off buying it because they don’t trust dealers to offer them good deal.”
Consumer Intelligence’s research found around 35% of customers buying through car dealers purchased add-ons with the most popular being breakdown cover taken out by 17%. Just 2% took out finance shortfall protection insurance.
Insurance Edge Comment;
This is an area where car insurance specialists need to spread the word about the liability that leaseholders take on with car finance. You are liable for the remainder of the three, four or five year term, even if the car is written off.
That could mean you are paid on the market value of your leased Jaguar, Audi, Merc or BMW luxury car, but you still owe thousands of pounds until the contract expires. Plus you have no flash car to impress the neighbours either – ouch!
The industry needs to bang the drum on this subject with some real life case studies and clever ad campaigns, because the car makers certainly will not.
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