Do You Need GAP Insurance on a Leased Car? - A Comprehensive Guide for the UK Market

 

When it comes to financing your next vehicle, leasing has become increasingly popular over the last few years in the UK. A lease is a bit different from other styles of personal finance for a car, like a hire purchase or a personal contract purchase. What signals out a contract hire-style lease is that you cannot own the vehicle as part of the lease terms.

 

So what difference does this make?

 

A lease is, effectively, a fixed-term rental agreement. You pay a deposit or advanced rental payment followed by a set number of additional monthly rentals. At the end of the agreement, you simply hand back the leased car or van to the leasing company.

 

However, if the vehicle is written off or stolen during the agreement term, you are still required to settle the lease. Your motor insurance can help, but a market value settlement may still leave you short of being able to clear your lease obligations.

 

The answer to help you pay off the outstanding finance agreement can be a specific GAP Insurance type designed for leases.

 

 

 

 

What is GAP Insurance for leased vehicles?

 

Lease GAP Insurance, or Contract Hire GAP Insurance, is designed to cover the financial shortfall between the market value of your car and the amount you owe on your lease.

 

It is specifically provided for lease agreements where you do not have the option to own the vehicle as part of the lease agreement.

 

You will normally be required to take out a fully comprehensive insurance policy for your lease car. This should provide a market value settlement to you if the motor insurer writes off the car as a total loss. This can be after a fire, flood, accident or theft. 

 

If the vehicle is declared a total loss, you must pay off your lease in full.

 

There can be a shortfall between the motor insurer settlement from the car insurer and the outstanding finance settlement on the lease. This can be made up of outstanding rentals still to pay on your lease.

 

Your insurance settlement may also see your motor insurance excess deducted.

 

This is what a lease and contract hire GAP Insurance policy can cover. The standard policy can cover the shortfall in the lease. Most Lease GAP Insurance will also provide cover for your motor insurance excess deduction.

 

Why do you have to use Lease & Contract Hire GAP cover for a lease agreement?

 

In the UK, there are various types of GAP Insurance, such as Return to Invoice GAP Insurance, Vehicle Replacement GAP Insurance, and Finance GAP Insurance. However, all these types of Guaranteed Asset Protection Insurance tend to provide cover only when a linked finance agreement allows you to own the vehicle.

 

With a Contract Hire style lease agreement, that is not the case.

 

To claim on RTI GAP Insurance or VRI GAP Insurance, you would have to have a finance agreement, or purchase invoice, for the vehicle in your name.

 

For a Finance Shortfall GAP Insurance policy, you would need a finance agreement linked to the vehicle that allows you to buy it. That would be a hire purchase or a personal contract purchase agreement. That is not a lease.

 

Contract Hire and Lease GAP Insurance is specifically designed for leased vehicles. It helps you cover your only liability, which is paying off the lease to the finance company should you find a shortfall.

 

 

Why Consider GAP Insurance for a Leased Car?

 

Cars depreciate in value the moment they leave the showroom; leased cars are no different. If the lease needs to be settled following a total loss, then the market value settlement from your car insurance company may not be enough to settle the lease.

 

You also have to replace the lease car.

 

Being left with a bill to pay on your first lease and then having to find a deposit for a brand-new replacement car could be a challenge. 

 

In the UK, car theft rates have been on the rise, making GAP Insurance even more relevant. The financial implications of losing a leased car can be severe, especially when you're still obligated to make lease payments on a car you no longer possess.

 

The gap between what your car insurance pays out and what you owe on your lease can be substantial. GAP Insurance serves as a financial safety net, covering this difference so you're not left in a financial lurch. It's a layer of protection that provides peace of mind, especially in a market as dynamic as the UK's.

 

Deposit Protection for your initial rental payment

 

Most leases will require an advanced or initial rental payment. This is often a multiple of the monthly rentals you are paying for your lease vehicle, for example, three, six or nine rentals upfront.

 

Many Lease GAP Insurance products will allow you to protect some or all of this initial payment. This means that your standard policy can cover any shortfall on the lease in the event of a claim. If you have the additional Deposit Protection cover, you can claim this back separately. You can then use this for your deposit on your replacement car.

 

Is GAP Insurance a Legal Requirement for a lease?

 

Contrary to popular belief, GAP Insurance is not legally required in the United Kingdom. However, many leasing companies may offer it as part of their leasing agreement sales process. It's crucial to read the fine print and understand your obligations before signing any contract.

 

While not legally mandated, the peace of mind and financial security that GAP Insurance offers make it a highly recommended option for anyone leasing a car in the UK. It's always better to be safe than sorry, especially when it involves significant financial commitments like car leasing.

 

Pros and Cons of GAP Insurance for a Leased Car

Pros

1. Financial Security: GAP Insurance covers the 'gap' between your car's current market value and the amount you still owe on your lease. 

2. Peace of Mind: Knowing you're protected against the financial implications of car theft or total loss can offer invaluable peace of mind.

3. Flexibility: In the UK, you can purchase GAP Insurance from either the leasing company or independent providers, giving you the flexibility to shop for the best rates.

Cons

1. Additional Cost: GAP Insurance comes at an extra cost over and above your standard car insurance and lease payments.

2. Not Always Necessary: GAP Insurance may not be as beneficial if you've made a large down payment (although you may want to cover that deposit) or if your car depreciates slowly.

3. GAP Insurance may not be available if you use the leased vehicle for unusual uses like a chauffeur, taxi, courier or driving school work.

 

Cost Factors for Lease GAP Insurance Cover

 

The main cost factors for a lease GAP policy include:

1. the monthly rental payment on your lease - the higher the monthly rental, the more the GAP Insurance premium will cost.

2. the period of months of your lease - the longer your lease is over, the higher the cost of the lease GAP cover.

3. the value of the vehicle - a higher value vehicle can attract a higher GAP Insurance premium cost.

4. where you are buying the GAP Insurance cover from - buying from an independent GAP Insurance specialist like GAPInsurance123 can often be cheaper than buying from your leasing broker or supplying motor dealer.

 

How to Purchase Lease GAP Insurance in the UK

 

You can purchase GAP Insurance through your leasing company, but shopping around is often more cost-effective. Independent providers, like GAPInsurance123, usually offer more competitive rates and flexible terms.

 

Before making a purchase, ensure the provider is regulated by the Financial Conduct Authority (FCA). This ensures you're dealing with a reputable company that adheres to UK regulations.

 

Remember, comparison websites can be a handy place to benchmark your GAP Insurance quotes. However, they are not always the cheapest. Being on an aggregator's panel can be expensive, and these costs are passed on to the end user, you.

 

GAPInsurance123 does not appear on price comparison websites. We hope that allows us to provide competitive premiums in all cases.

 

Lease GAP Insurance quote examples

 

We have used the well-known leasing comparison website leasing.com to provide examples of current lease deals available in the UK (at the time of writing, September 2023).

 

We have also provided examples of the current premium prices from GAPInsurance123 to cover these lease agreements for their full term. If quoted with an initial rental, we have included our optional Deposit protection cover in the quote.

 

FIAT 500 

• 24-month lease at £195.60 per month

• 9-month initial rental deposit - £1760.40

• GAPInsurance123 quote - £107.91 inclusive of Insurance Premium Tax

• This includes £250 excess contribution cover and full protection for the initial deposit

 

 

 

 

 

Volkswagen Golf 1.5 TSI R-Line

• 36-month lease at £269.99 per month

• 9-month initial rental deposit - £2370.69

• GAPInsurance123 quote - £122.91 inclusive of Insurance Premium Tax

• This includes £250 excess contribution cover and full protection of the initial deposit

 

 

 

 

 

Volvo XC40 Electric

• 48-month lease at £551.66 per month
• 3-month initial rental deposit - £1654.98
• GAPInsurance123 quote - £141.27 inclusive of Insurance Premium Tax
• This included £250 excess contribution cover and full protection of the initial deposit.

 

 

Please note these quotes are from the day of publishing and should only be considered an example. Quotes are subject to change.

 

FAQs

 

Is GAP Insurance mandatory in the UK?

No, it's not legally required but highly recommended for those concerned about the financial risk of having a vehicle written off.

 

Is GAP Insurance worth it?

Whether you need GAP Insurance at all is a decision for the individual. It can provide peace of mind at worst. At best, it can provide valuable financial protection that allows you to clear a lease settlement and, if taken, a deposit for a replacement vehicle.

 

Does GAP Insurance cover theft?

Yes, it can cover situations where the leased vehicle has been stolen. This depends on the main motor insurance company declaring the vehicle a total loss after it has been stolen and paying out the market value as a settlement. You can then make a claim on your lease GAP Insurance and optional initial rental cover if taken.

 

In Conclusion,

 

GAP Insurance may not be a legal requirement in the UK, but its financial benefits are undeniable. Whether it's covering the gap between your car's market value and your lease amount or providing peace of mind in case of theft or total loss, GAP Insurance is a wise investment for anyone leasing a car in the UK.

Published 4/9/23, written by Mark Griffiths