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Do you need Gap Insurance for a Lease Hire/Contract Hire Car?

What happens in the event of your lease car being declared a total loss?

If you're leasing a vehicle or taking the car using a form of contract hire, why should you be concerned if the vehicle is declared a total loss? (i.e stolen and not recovered or damaged) After all if it's not your car, so surely it shouldn't be your problem? Unfortunately, this is not the case.

Essentially you have agreed to pay a fee for the vehicle over the course of the agreement. The lease/contract hire company will then know what they should be getting for the vehicle and the agreement over the course of the lease. For example, they will know that after three years they will get back let's say, £20,000 for the car. You have also agreed to pay them £250 a month for three years, which amounts to £9,000. Therefore, in total they know that for that car, they will get £29,000.PCH Lease Gap

  • They honestly don't mind if you pay your monthly payments and then give them an asset back at the end. (the value of which they will have already estimated e.g £20,000).
  • If you buy yourself out of the agreement in month three.
  • Or if your vehicle is written off.

The lease/contract hire agreement for them is nothing more than a financial agreement, which at the end, when they have sold the car and you've finished paying the agreement off, they will have the £29,000 as explained in the example above. 

This means that if your vehicle is declared a total loss, without any form of Gap Insurance, you are legally and financially responsible for paying any financial shortfall between the value of your vehicle on the day it was written off and the amount that you still have outstanding on your lease.

Lets take a look at the figures and show you what we mean. figures for illustration purposes only

  • You buy a car with a list price of £38,925.00
  • Your lease hire/contract hire company uses their buying power and actually pay £31,335.00.
  • You pay an advanced rental of 3 months £238 x 3 = £714.00
  • Two years into your agreement your car is stolen.
  • Your motor insurance company offer you £18,275. This is based on the current value of the vehicle.
  • Your lease company send you an invoice for the difference between their settlement and your motor insurance companies payment. In this example, it would be in the region of £6,634.00.

You are now left with no car,you also have to pay the invoice for the shortfall and find another deposit/advanced rental. All this as well as having to cope with what happened. Please remember that under the terms of your finance agreement this amount is owed by you and you are legally responsible for paying it or making sure that it is cleared. Not exactly an ideal situation to be in.

You could however have protected yourself with a three year Lease Hire/Contract Hire Gap Insurance policy with Deposit Protection. The policy would've cost in the region of £119.11 inclusive of deposit protection, depending on your liability. This policy would have cleared your outstanding finance, regardless of the amount (there is no upper claim limit) and then given you back your initial rental, up to a maximum of £3,000.

Our policies are feature packed and work. However, no matter how good our policies are they can't stop your vehicle from being stolen or you being involved in an accident. A Lease Hire/Contract Hire Gap Insurance policy can make sure that at least the financial aspects are nothing to worry about.