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When you arrange a car lease, you choose how much to pay at the start. It might be one monthly rental. It might be three, six, nine or even twelve, in return for a lower payment every month after that. Either way, the upfront sum can run into thousands of pounds.
So what happens to it if the car is stolen or written off a few months in?
Normally, you don't get it back. The initial rental is a payment towards the cost of hiring the car, not a refundable deposit, and you build no ownership or equity in the vehicle.
Two separate risks sit behind a lease total loss, and it helps to keep them apart. One is the money you still owe the leasing company. The other is the money you have already paid.
What an initial rental is
On a Personal or Business Contract Hire agreement, the initial rental is the first payment you make. People often call it a deposit, and some lease documents do too, but it works as an advance on the rentals.
Lease offers are usually shown as 1+35, 3+35, 6+35 or 9+35. The first number is the initial rental, counted in monthly payments. The second is the number of regular rentals that follow. On a 9+35 deal at £300 a month, you pay £2,700 upfront and then 35 payments of £300.
A bigger initial rental lowers the monthly figure. It does not mean the £2,700 comes back at the end.
What happens when a leased car is written off?
The leasing company owns the car, with the liability for the lease sitting with you. If the car is stolen and not recovered, or damaged beyond economic repair, your motor insurer values it as it stood just before the loss. This is the 'market value' based on the age, mileage and condition of the vehicle at the time.
The leasing company then gives an early settlement figure for ending the agreement. The motor insurer's payment goes to the leasing company, and any gap between the two figures is the shortfall.
You are normally responsible for the shortfall.
Sometimes a motor insurer may have the option to offer a new replacement. On a lease that is rarely simple, because the leasing company would have to agree. This article deals with the more common outcome, a cash settlement.
How Contract Hire GAP deals with the shortfall
A motor policy pays market value. The leasing company wants its settlement figure. When market value is the lower of the two, you can owe the difference.
Total Loss GAP Contract Hire insurance can cover that eligible shortfall, paying it to the leasing company.
It can also cover the excess your motor insurer deducts, both compulsory and voluntary combined, up to £1,000. If the deduction is £750, we can pay £750. If it is £1,500, we can pay £1,000. The excess contribution is only paid as part of a successful GAP claim, following a total loss.
Why GAP alone doesn't return your initial rental
Clearing the lease clears what you owe. It does not return what you have already paid. Your initial rental has gone into the agreement, so it is not usually part of the settlement figure at all.
Someone who paid nine rentals upfront and lost the car within a few months could be out of pocket by several thousand pounds, with no car and no lease. Finding another large initial rental to get back on the road can be hard at short notice.
That is what Deposit Protection is for.
How Deposit Protection works
Deposit Protection, sometimes called initial rental protection, is built into our Contract Hire GAP policy. Every policy includes mandatory cover for the initial deposit up to £1,000. You can raise that limit to £2,000 or £3,000 when you get a quote.
The chosen figure is a maximum. We can pay the initial rental shown on your lease agreement, up to that limit, and never more.
If you paid £1,800 and your limit is £1,000, the most we can pay is £1,000. Choose the £2,000 option and the same loss can be covered in full at £1,800. If you paid £400 and chose £3,000, the most we could pay is £400.
It is important, therefore, you consider what level of cover suits you best.
Deposit Protection can also pay out whether or not there is a shortfall on the lease. If the motor insurer's settlement covers the leasing company in full, there is nothing for GAP to pay on the lease itself. The initial rental you lost can still be covered, as long as the total loss claim meets the policy terms.
Two worked examples
Say you lease a car at £300 a month on a 6+35 plan. You pay £1,800 upfront, as your advance rental, and choose the £2,000 limit. Eight months in, the car is stolen and never recovered. Your motor insurer pays market value, which falls short of the settlement figure. Subject to a valid claim, GAP can pay the shortfall to the leasing company, and Deposit Protection can pay the £1,800 to you. You can then put it towards your next car.
Now take a £450 monthly rental on a 9+35 plan. You pay £4,050 upfront and choose the top limit of £3,000. After a total loss, the most Deposit Protection can pay is £3,000. The other £1,050 is not covered. That is why it pays to compare the limit with the initial rental on your own agreement before you buy.
Who should think about a higher limit?
The standard £1,000 covers the whole initial rental where you paid £1,000 or less, which will often be the case on a 1+35 deal. Once you pay three, six, nine or twelve rentals upfront, the sum at risk is more likely to be above £1,000.
Higher limit options are worth a look if replacing that money would put pressure on your finances, or if you would need another car soon after a total loss.
Take the figure from the signed finance agreement, not from the advertised payment plan. Choosing a limit above your initial rental will not increase a claim settlement.
What you may need to claim
We may ask for your motor insurance schedule, the motor insurer's settlement letter, the original lease agreement and the leasing company's early settlement figure. After a theft or malicious damage, you will also need a crime reference number.
The initial rental has to be clearly identifiable. If your documents don't show it, the Deposit Protection claim can be delayed or reduced.
Report your claim as soon as you can, and before you accept your motor insurer's offer.
Eligibility and exclusions
The main points below set out what lease GAP insurance may or may not cover.
You must buy cover within 180 days of taking delivery. The vehicle's P11D value must be between £5,000 and £100,000*, and your motor insurance must stay in force. The vehicle must not be an excluded type, and these are listed in the policy wording.
GAP does not cover arrears, maintenance charges, a secondary payment schedule or amounts carried over from earlier finance. Nothing is payable if your motor insurance claim is declined and no settlement is made.
Always read the Insurance Product Information Document and full policy wording before you buy.
The short version
An initial rental is not usually refunded when a lease car is written off. Contract Hire GAP from Total Loss GAP can clear the shortfall owed to the leasing company and can cover your motor insurance excess, up to £1,000, as standard.
Deposit Protection can reimburse the initial rental itself, up to £1,000 as standard or £2,000 or £3,000 if you choose a higher limit. The two work together, and the more you pay upfront, the more it matters to get the limit right.
Compare Contract Hire and Lease GAP insurance
Sources and further reading
Total Loss GAP Contract Hire GAP policy wording and Insurance Product Information Document (Helvetia) and Contract Hire GAP policy wording and Insurance Product Information Document (Hiscox).
A simple Guide to Contract Hire GAP Insurance.
*For Contract Hire GAP for vehicles up to £100,000 P11d value. If your vehicle is above £100,000, you may be offered a quote from a different insurer. This insurer will have their own terms and conditions. Please check these at the quote stage, or call us for more details.
This article gives general information, not personal insurance or financial advice. Cover is subject to eligibility, policy terms, exclusions and the maximum benefits shown on your policy schedule.