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You take a 4-year lease on a vehicle
You pay an advanced rental of £1,800 and 47 monthly rentals of £300.
Two years into the lease, the car is stolen.
Your motor insurer pays out the market value at that time, let's say that is £25,000
The lease settlement at that time was £28,000
The contract hire and lease GAP Insurance policy covers the difference between the market vehicle value (£25,000) and the outstanding finance settlement figure on the lease of £28,000.
If you also took the optional Deposit Protection initial rental cover, this element will see the insurance pay the £1,500 advanced rental back to you.
These will include:
Lease & Contract Hire Gap cover is different from most other types of GAP Insurance you can buy. That is because it is designed to cover a financial arrangement that is also different to many others.
With a Contract Hire or lease agreement, you effectively commit to a fixed-term rental arrangement. The key aspect is that you have no option to own the vehicle written into the lease agreement. This is different from the likes of PCP and HP, where you can own the vehicle by paying off the finance settlement.
This means that if the car is written off or stolen and declared a total loss during the lease term, then you will be left with the lease settlement to pay off. You may need contract hire gap cover to clear any shortfall.
If your car is in an accident, stolen or set on fire and declared a total loss by your motor insurer, then you should receive the market value for the vehicle in settlement. That is to say, your fully comprehensive motor insurance policy, instead of repairing or replacing the car, pays you what it would cost to replace the vehicle with the same age and mileage at that time.
However, you still have a lease settlement to pay off to the finance company.
The issue is that you will be asked to pay off your lease for the car that has been written off. If the market value settlement from the car insurance is not enough to pay off your lease settlement, then this shortfall is required from you, the leaseholder.
This is where a Contract Hire GAP Insurance policy can step in. Simply put, the GAP Insurance cover can pay the difference between the motor insurers' pay out and the outstanding lease settlement. The lease settlement figure is also known as the lease early termination fee.
A Contract Hire lease (also known as lease hire) is a fixed-term rental arrangement between a finance company and either a private individual or a business.
A contract hire lease agreement is normally made up of two elements.
The advanced rental is the initial rental payment commonly taken in the first month you have the vehicle. The advanced rental is often simply calculated as a multiple of months (3,6 or 9 monthly rentals, for example).
If you are looking to lease a car, the contract hire agreement for a car will give you all the details of how much your rental payments are and any advanced rental deposits you need to pay.
Contract Hire agreements also differ by what happens at the end of the contract. You have no option to own the vehicle, written into the lease, but you will have a contract early termination fee. This means that if you were to terminate your lease early, for example, after six months of leasing, the car contract hire contract will state that you would then need to pay this fee.
This early termination fee is simply the settlement you must make to end the lease early. This includes when the car is written off or stolen during the lease period.
To be clear, no GAP Insurance policy is obligatory for any car purchase; it is the choice of the leaseholder whether they need contract hire gap cover for their contract hire agreement.
What you may want to consider is the position you may be in if your car is written off during the period of the lease.
If the vehicle is written off or stolen, then your motor insurance will cover the cost of the replacement cost. So if the vehicle is two years old, with 20,000 miles on the clock, then the market value settlement will be for a 2-year-old, 20,000 miles example then.
This may not be enough to clear your lease settlement at that time. The lease settlement (also known as the early termination fee) can be made up of the outstanding rentals still to pay on the lease and the vehicle residual value.
So if your motor insurance settlement does not equal the lease settlement, then the shortfall is still payable by you.
This means you may have to find the money to pay off the lease, AND you still have to replace the vehicle.
Lease & Contract Hire Gap can take care of the shortfall you have to pay, clearing the lease and leaving you with just a new car to secure.
So is Lease & Contract Hire Gap recommended? If you don't like the idea of having to pay towards a vehicle you no longer own, then the answer could be a resounding 'yes'!
This is a great question that comes up time after time with people we speak to.
New car replacement cover is where your motor insurer, usually in the first year of your having the vehicle, will provide you with a brand new replacement vehicle if they write off the vehicle in that time.
Sounds great, but there are normally a number of criteria you must reach in order for you to qualify for this new car replacement cover.
There can be others, but let's look at each of these examples in turn.
You are the first registered keeper for the vehicle.
With a contract hire agreement, the leasing or finance company are normally the registered keeper, not the leaseholder.
You own the vehicle.
With a Contract Hire lease, you are not the owner of the vehicle. Nor do you have the option to own written into the lease agreement. With HP, PCP or outright purchase you can own, not with contract hire.
Any other party with an interest in the vehicle must agree to its replacement.
In the case of a contract hire lease, the leasing or finance company has an interest in the vehicle. After all, they effectively own it and rent it to the leaseholder.
If the vehicle is written off, the leasing company would have to agree to a new vehicle as a settlement. This would mean they would have to draw up a new lease agreement, as the old one was for a vehicle that no longer exists.
Would they agree to this? You would have to talk to your leasing company to find out.
However, with any one of those criteria (plus any more than your motor insurance may have), meaning your new car replacement eligibility is not met, it may be unlikely you would qualify for such cover on a contract-hire vehicle.
We urge anyone considering reliance on new for old replacement cover to talk to their motor insurer and leasing company first.
No. With a GapInsurance123 Lease & Contract Hire GAP Insurance policy, you must take the policy out within 180 days of you receiving the vehicle. Anything outside that period, and we are unable to provide cover.
All providers are different, so you may find alternative cover elsewhere. For example, our sister websites at Totallossgap.co.uk and EasyGap.co.uk provide similar contract hire GAP Insurance coverage with up to 180 days allowed from vehicle receipt and policy purchase.
No, certainly not the Lease & Contract Hire GAP Insurance cover from GapInsurance123. As you can own the vehicle with a PCP agreement, we would recommend a more suitable option for cover.
Either Combined Return to Invoice GAP Insurance or Combined Vehicle Replacement GAP Insurance policies would be more effective for a Personal Contract Purchase finance agreement. Looking to buy GAP Insurance for a PCP agreement is sensible. However, being able to protect the purchase price or vehicle replacement cost provides more options than just covering the financial shortfall.
If you do not have a Contract Hire Gap policy in place, and your lease vehicle is declared a write-off and a total loss by your motor insurance company, then your lease settlement will have to be met just by your motor insurer's settlement.
Your motor insurance company may meet the current market replacement value for the vehicle, but they do not have to meet the lease settlement amount.
If the lease settlement is more than the motor insurance settlement, then the leaseholder has to pay the outstanding finance amount.
There are a number of places you can look to buy suitable GAP Insurance cover for your lease vehicle.
No, they are quite different. If your lease vehicle is declared a total loss, then a lease gap policy simply pays off any shortfall between the motor insurance settlement and the lease company's finance settlement.
Return to Invoice Gap is designed to pay the difference between the motor insurance settlement and the original invoice price paid for the vehicle. As you do not have an invoice for the purchase of the vehicle in the name of the leaseholder, Return to Invoice Gap is not applicable. You cannot claim the invoice price for something you do not own.
If you are looking for Lease & Contract Hire GAP Insurance, you can compare premiums and terms from several providers. If you get a GAP Insurance quote from your motor dealer or leasing company and compare that to GapInsurance123, you may find quite a difference in the premium price.
There are a couple of reasons for this:
Commission margins: GapInsurance123 works to fixed, low commissions per policy sale. The GapInsurance123 business model is to sell many policies at low margins per sale.
Economy of scale: The motor dealer or leasing company cannot access the open market for GAP Insurance sales. Effectively, a motor dealer or leasing company can only offer GAP Insurance policies to a customer they have provided a contract hire vehicles to.
Your GapInsurance123 Gap policy aims to provide you with peace of mind all the way.
Regarding the policy, the protection comes from the strength of the underwriter being A-rated and a Lloyds of London syndicate.
GapInsurance123 as a brand, has over a decade of experience in the field of GAP Insurance. The brand is a trading name of Aequitas Automotive Ltd, a specialist broker who runs many brands in the ancillary motor product field.
Aequitas Automotive Ltd is directly authorised and regulated by the Financial Conduct Authority and carries net assets well above £1 million at Companies House.
Finally, protection by the Financial Services Compensation Scheme is available for qualifying customers should the insurer fail to meet their obligations.