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Optional Deposit Protection for Lease and Contract Hire GAP Insurance
Understanding Deposit Protection in GAP Insurance for Lease Vehicles in the UK
Leasing a vehicle is increasingly becoming the go-to option for many people in the UK. Unlike traditional financing options such as hire purchase or PCP, leasing doesn't offer you the chance to own the vehicle. Instead, you enter into a rental agreement, making payments for a specified period before returning the car to the leasing company.
The lease agreement is normally structured with an advanced rental deposit payment (normally a multiple of the monthly rental) followed by fixed monthly rentals for the remainder of the term.
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GAP Insurance can play a crucial role in protecting lease agreements. If the vehicle is written off or stolen, then your motor insurer should provide you with a market value settlement for the vehicle. Your leasing company will also provide you with a settlement to clear off the lease. There can be a difference between the two figures that you will have to pay.
Unless you have GAP Insurance.
Lease and Contract Hire GAP Insurance covers the difference between the amount your motor insurance pays out and the remaining balance you owe to the leasing company in case your vehicle is declared a 'total loss' due to an accident, fire, or theft.
The Importance of Deposits in Lease Agreements
Most lease agreements require an upfront deposit or advanced rental payment. For instance, an agreement might be structured as "6 + 23 rentals of £250+VAT." This means you'd pay an advanced rental deposit of 6 times £250 plus VAT, followed by 23 monthly payments.
The advanced rental payment can help reduce your monthly rental payments as they effectively form part of the overall lease payment. By paying more as an upfront deposit, you have less to pay over the duration of the lease.
The 'Gap' in Standard GAP Insurance
If your vehicle is declared a 'total loss,' GAP Insurance will cover the outstanding balance but won't cover your initial deposit. In our example, that would be £2000 (6 X £250 plus VAT). Traditional GAP Insurance products don't offer this coverage, which is a concern for many consumers. This is because even though you have cleared the lease, you still have to replace the vehicle. This can mean you have to find a similar size of the initial advanced rental to get another vehicle on a lease.
That may be easy to budget for if you run the length of the lease to the end. However, imagine if you have only had your vehicle for a month or two. Would it be easy to find another few thousand pounds to use as your advanced rental on a replacement vehicle? Maybe not.
Introducing Advanced Rental Protection
The good news is that we now offer an additional feature that covers up to £3000 of any advanced rental payment. This ensures that you're fully protected, not just for the remaining lease amount but also for your initial deposit.
If you take this option, then the standard Lease and Contract Hire GAP can cover any shortfall on your lease, as well as provide up to £250 towards any motor insurer excess deduction.
The advanced rental cover can return your advanced rental payment, subject to the claim limit you chose, up to £3,000.
The levels of advanced rental protection are available at £1,000, £2,000 and £3,000 levels currently.
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To get a quote for GAP Insurance with advanced rental protection, select the "Lease and Contract Hire Gap" option on our website. Input your monthly rental amount and the length of coverage you need. If you want to include deposit protection, simply check the corresponding box and select your desired level of cover.
For more information, feel free to contact our customer service team at 0800 195 4926.
Updated 4/9/23, written by Mark Griffiths
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