Originally Posted by mjh93sa
I agree with you both as regards RTI cover being a lottery that is sold on the basis of setting you to a better point than you started with. You could say it's life insurance for the car.
It's also a neat trick that the three year policy really only has to cover two years.
I maintain that the choice of taking RTI cover or not is still in part down to your personal view of risk. There are people who are happy to have the most basic insurance cover at a lower cost and have a large voluntary excess as they feel more secure.
There are however others who like to know that they have cover for everything
. They want the new car with a warranty and breakdown cover. They'll take a fully comp insurance policy with protected no-claims and uninsured loss recovery. They'll get tyre insurance and take the PPI on the finance. Basically they prefer to pay insurance rather than risk
having to pay for something unexpected. For these people something like RTI cover makes them feel warm and cosy. They'll also probably take the extended warranty on their next fridge.
I would also maintain that there can be a financial risk without RTI. Someone who is on an HP agreement, but doing galactic mileage could find themselves with a write-off that has a market value that is less than the outstanding finance.
It depends what you consider the concept of 'risk' to really mean.
Most of these things are actually regular costs that can be considered to be fixed ... cars depreciate, fridges break down and need to be replaced.
You could actually consider a 'sinking fund' arrangement for this sort of thing .. you know that you will have to fund say £10k of misc cost in a year, so you set aside £833 a month in a 'sinking fund' to cover this. This is how business manages this sort of risk and it turns the unpredicatable into a regular fixed cost.
The fact that things will need to be replaced or repaired and will cost you money isn't a risk - it's a reality. If you take out the cover you are gambling that the amount you pay for this reality will be reduced by at least the cost of the cover. Given that the cost of the cover has to include the insurers likely settlement costs, profit and overheads, the odds are that for most people this will not be the case and they would have been better off without the insurance.
There are obviously some things where insurance is of genuine benefit - cars, homes, life insurance all make sense, because it's worth paying something to cover you for a genuine disaster.
I draw the line at secondary tier products ... which are often very poor value ... things like payment protection insurance and extended warranties.
Personally I would include GAP and tyre insurance in this category.
I also disagree that GAP makes more sense if you have finance. The finance owed is irrelevant, because the true cost of the vehicle is it's REGULAR' depreciation.
If you find yourself with a finance shortfall at any stage it simply shows that you have not been paying off the loan as quickly as the car has depreciated. In this situation there is always a 'hit' to be taken at some stage and it makes little difference if this follows an insurance settlement or a re-sale.
Good luck with the new cars guys ... not long now.