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Free insurance offered by car dealerships may let you drive away the same day but can cost more than you bargained for if you need to make a claim.
Short-term cover offered at no extra charge when you buy a car professes to make your life easier, save you a few pounds and give you time to shop around for the best longer-term deal – while allowing you to drive away immediately.
But eager car buyers are at risk of finding themselves inadequately insured if they have an accident, as these policies generally fail to offer no-claims protection, provide restricted legal cover and heavily limit payouts for repairs.
Ashley Rumbold, 45, from Hertfordshire, fell foul of the limited cover when he bought a £50,000 used Jaguar from a Beadles dealership in Watford in May.
Minutes after driving off with the new car, the vehicle in front threw up a stone which cracked Mr Rumbold’s windscreen. He phoned the dealership when he got home to claim on the insurance provided.
He told Telegraph Money: "The dealership told me the insurance did not cover the windscreen, a point not explained to me when I bought the car.
"The insurance was to allow me to drive the car away as I could not get insurance for the car in advance of owning it. On the day I bought it I went to the dealership to pay the balance before driving away. At no point did they explain the levels of cover the insurance provided – they were just eager to complete the sale."
Mr Rumbold, who set up www.usedcarscandal.co.uk to highlight other sales tricks, said he felt the insurance that dealerships provide should be of a quality consistent with the car sold, in this case a luxury Jaguar.
He estimated that the cost of replacing the windscreen, which was heated and had a built-in camera, would be around £1,000.
Eventually the dealership agreed to cover the cost on a goodwill basis, although it took many weeks for the repair to take place.
Graham Hill, a car finance expert at Graham Hill Training, branded this type of free insurance "sinister".
He said: "It does not offer the same cover you would get if you had your own insurance – for example, ‘no-claims protection’, especially if you have accumulated many years of discount. So at a time when you are most likely to have an accident, in a car you’re unfamiliar with, your no-claims discount isn’t protected."
Drivers who have an accident without that protection face losing a valuable discount accumulated over a number of years and will see a rise in future insurance premiums.
Mr Hill said: "Say your insurance is £1,000 a year but with your 60pc no-claims discount you pay £400. Then you have an accident at a time when you don’t have no-claims discount cover. Thanks to the accident, your premium increases to £1,500, possibly more, and you lose your no-claims discount as you’ve now made a claim.
"Your premium could now jump from £400 to £1,500 after saving less than a tenner for a week’s free insurance." Other restrictions on what the free insurance covers that are unlikely to be flagged by dealerships could be even more costly.
Mr Hill said: "Legal cover will probably be restricted to say, £50,000. If you’ve been seriously injured or if passengers have been injured, that could disappear very quickly. It’s the same with repairs. The limit can be as low as £2,500. On a high-end car that can be as little as one door."
Last year 8.1 million used and 2.5 million new cars changed hands, according to the Society of Motor Manufacturers & Traders.
Mr Hill advised car buyers to research and arrange their own fully comprehensive cover before they pick up their vehicle from the dealership.
"Get your new insurer to send a cover note to the dealership via email, ready for registration when you pick the car up," he said.
Mr Hill added that these free policies should also be avoided because the small print often allows the insurer to harvest both your own and any other named driver’s personal data, and send it around the world.
"Never ever take out the free insurance," he said.
"You are saving yourself a few quid at best and could leave yourself seriously out of pocket."
Beadles had not responded to a request for comment when we went to press.
laura.miller@Finance.co.uk
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