Motor trade insurance

Are you eligible for a policy?

If you buy and sell cars or work on them for financial reward, even if it’s just every now and then, you need to make sure you’ve got the right kind of insurance policy in place. That’s most likely going to be motor trade insurance, and the benefits it gives in terms of freedom and flexibility are great. But as is often the way with insurance products, understanding the small print and terms and conditions are often as clear as pea soup.

As a result, many people don’t even realise they’re eligible for trade insurance, while others have no idea if they really need it and carry on regardless, blithely unaware that by using the third party extension on their standard policy to drive vehicles that aren’t theirs is actually illegal. The third party extension is for one-off situations, such as needing to borrow a friend’s car while yours is off the road or sharing the driving on long journeys, rather than habitually driving other people’s cars because you’re fixing or servicing them. It certainly doesn’t apply to any car you buy with the intention of selling it, even if it’s not registered in your own name.

“As with all insurance policies, the importance is being truthful at the point of proposal as opposed to being ‘economic’ with the truth,” says Phil Swift, CEO of claims specialist CMA UK. “There needs to be a move from the attitude of ‘I need a policy because it’s the law, so I’ll get one as cheap as I can by any means’ to ‘what am I getting and what do I want this for?’ With your insurance, you want to be able to sleep at night in the knowledge that if another idiot causes you to be involved in a collision, your insurer will step up and take over the issue for you and meet the costs – which can often be substantial.”

All claims – even relatively small ones – are subject to a level of investigation, so if it’s discovered that you’ve been dishonest or not as truthful as you could have been at the time of the policy’s inception, you could end up having the value of your claim reduced due to not revealing a ‘material fact’ or having it thrown out altogether.

One of the grey areas when it comes to taking out a motor trade policy is the definition of ‘trading’. Many people like to change their cars frequently, but more out of being enthusiasts than for any kind of profit or reward. A motor trade policy could still be relevant for such motorists, as well as much easier to manage if the turnover of cars is sufficient and the policyholder keeps records of those that come and go.

What is trading?

“It’s a good question,” says Phil. “How many cars do you need to sell to be a trader? There’s no fixed answer. As a

claims handler, we’d look for evidence of business. Trade defined as buying and selling or working on cars as a type of work, even if it’s only occasional. It doesn’t matter if you make a loss – that’s not the concern of the insurer or claims handler. Keep records. Don’t be lax.”

That said, a trade policy shouldn’t be looked upon as a cost-cutting exercise or an alternative to conventional motor insurance for those who just want to insure multiple vehicles or change their car every other week.

“We know traders – we know what they do, what they need – and our questions are tailored around this,” says Phil. “Problems arise when a trader either keeps too little documentation or is not a trader and has obtained the policy either because they think it’s a good idea because they change cars frequently, seeing it as a means to obtain a cheaper premium or use it to hide other activity such as putting mates’ or family members’ cars on cover. That’s not what it’s for.”

However, the insurance industry is pragmatic – more so than many people believe – and would much rather a customer have a product that’s tailored to their needs even if they’re not trading for reward. Tradex Insurance, for example, offers a Car Collector and Car Restorer policy, which is aimed at the hobbyist but on trade terms, and also offers specific policies for car dealers who trade from home or only buy and sell on a part-time basis. Other motor trade providers, such as Roadrunner, offer a less specific type of policy, but cover part-time and home traders under the conditions of their standard policies, so again it’s a case of knowing what you want and being up-front with the insurer at the time of quotation.

“Do it over the phone, not online,” says Phil. “Online quotes can’t take into account specific circumstances. But be honest. At proposal, you can be asked for a proposal form, to see what is sought. We’d expect to see the trading name and to know the business premises. But I suspect, as with personal policies, much of the data given is taken ‘in good faith’ and the problem comes when it’s time to claim. There are always those who think ‘I’m a good driver, I’ll never make a claim’. Really, I wonder if there is a relationship between being ‘good’ at driving but ‘bad’ at answering questions!”

Another common mistake made by trade policy holders is to not update the Motor Insurance Database (MID). Most trade insurers have an online form whereby, under continuous insurance regulations, policyholders are required to add the details of cars on cover and – importantly – remove them. If the car stays on cover and is involved in an incident involving a subsequent owner, if they’re not insured there’s an element of liability that lies with the car’s current insured party – you.

Verdict

There’s no mistaking the fact that motor trade insurance is useful for anyone who buys and sells cars, whether full- or part-time, as well as those who repair them or work on cars in any other capacity. Indeed, you may not even realise it, but if even a small part of your income comes from the motor trade, then it’s fair to say that a trade policy is as essential as it is useful.

However, the benefits are only there if you genuinely need them. If you simply own and maintain your own car and rarely drive any others, it’s not for you.