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Contract Hire GAP Insurance : A short Guide and FAQ's


When you take out a contract hire agreement for your new car, you may not have considered what would happen if the car was written off or stolen during the agreement. Your leasing company will require you to settlement off your lease. Your car insurance company may only cover the then, current market value of the vehicle.   Contract Hire GAP Insurance


This difference between the motor insurance settlement figure and the lease settlement figure could be significantly different. This is where Gap Insurance can step in.


Without Gap Insurance, you could be left footing a huge bill to cover the cost difference between the value of your car and the amount still owed on your finance agreement. In this article, we'll tell you everything you need to know about gap insurance specifically for leases, including how it works and who needs it.


What is Contract Hire GAP Insurance?


As mentioned above, GAP Insurance is an additional, optional layer of financial protection that can help bridge any shortfall between the current value of your vehicle and, with a lease, the outstanding settlement on your lease agreement.


However, to claim on GAP Insurance cover two things must happen:

  1. Your vehicle must be fully comprehensively insured.

  2. Your motor insurer must declare the vehicle a total loss following a write off or theft.


If, following an incident that leads the motor insurance provider to write off the car, you will be concerned with two figures

  1. The market value settlement from the motor insurance company

  2. The settlement figure from the leasing company


If there is a 'Gap' between the two then this is where Contract Hire Gap Insurance can step in.


How Gap Insurance works on a lease?


If you are taking Gap Insurance out on a lease it is important to understand how it works. Gap Insurance cover on a lease can protect you in different ways than if you buy a vehicle outright for example.    Car lease agreement


Perhaps it is best if we define exactly what we mean by the term 'lease'. A lease is just one of a number of ways you can secure a car. What is different about a lease is that you do not have the right to own the car outright written in the lease agreement.


Effectively a lease is a fixed term rental agreement, and you simply hand the vehicle back at the end.


This factor impacts the types of Guaranteed Asset Protection, or Gap Insurance policies available.


For example, as you cannot own the lease car at all, you cannot look to take the Return to Invoice Gap Insurance or Vehicle Replacement Gap Insurance. This is because these types of Gap Insurance cover require you to be able to own the vehicle.


As a lease car holder your only liability is clear the outstanding finance settlement on the lease. As described above, this is what Contract Hire Gap Insurance is designed to do.


How Contract Hire Gap Insurance works - an example


Let's say you secure a Tesla Model 3 on a lease for 3 years. Your monthly rental on the lease agreement is £500 and you place an advanced rental payment of 6 months upfront, so £3000.


Move forward 18 months. The Tesla is involved in an accident, and written off by the car insure. You have fully comprehensive motor insurance in place, but this has now dropped to £25,000.


Your leasing company provides you with a settlement figure of £29,000.


Your leasing company can take the £25,000 provided by your fully comprehensive motor insurance policy, but you are left with a shortfall of £4,000.


This you have to pay to the leasing company to settle off the lease on the Tesla.


That is unless your bought a Contract Hire Gap Insurance policy at the start of the lease. If you did, and subject to the terms and conditions, this can cover the £4,000 shortfall for you, allowing you to pay off your lease in full.

Is Contract Hire Gap Insurance the same as Finance Gap Insurance?


Not quite, but Finance Gap Insurance does work in a very similar way to Contract Hire, or Lease Gap Insurance. Both Gap Insurance policies look to cover a financial shortfall between a current market value settlement from a motor insurance company and the amount outstanding on a finance agreement.


The key difference is that Contract hire gap insurance is taken against a lease where you have no option to own the vehicle. Finance gap insurance is normally used for finance agreements where you can own the vehicle, like Personal Contract Purchase or Hire Purchase.


However, you may find some Finance gap insurance products may cover a lease too, it is always worth checking to be sure.


What else may be covered by a Contract Hire Gap Insurance policy?


You would expect any Gap Insurance policy to cover a certain amount of motor insurance excess that may be deducted by your car insurer when they pay our your settlement. With Total Loss Gap Gap Insurance products currently we cover the first £250 of any excess deducted by the car insurer.


You may also find you have an option to protect some, or all of your advanced rental payment. This is known as Deposit Protection.


For example, if you had a 3 year lease at £400 a month, and you had an advanced rental of 6 months up front (6 X £400 = £2400), then if the vehicle was later written off during the policy term, your motor insurer will pay out the current replacement value in settlement.


Your standard Gap Insurance cover can cover any shortfall between the the car insurance settlement and the lease settlement required by the finance company.  car write off


If you had taken the optional Deposit Protection then you can also claim back, subject to policy claim limit, the £2400 advanced rental deposit you initially paid. You can then put this towards securing your brand new replacement car.


Can Contract Hire Gap Insurance cover the purchase price of the vehicle?


In short, no. The reason being that you cannot claim back the purchase price of the car because you can't own the vehicle. To make a claim for a loss then you must have suffered that loss in the first place. You have not bought, and cannot buy, the car as part of the lease agreement.


Your only liability is to pay off the lease, and this is what Gap Insurance for contract hire can do, but covering the shortfall on the lease settlement.


So there you have it, our short guide to Gap Insurance for Contract Hire agreements. With some of the best value insurance premiums in the market today, why not find out how inexpensive lease Gap Insurance can be by getting a Gap Insurance quote from Total Loss Gap today.