Do you Need GAP Insurance on a Leased Car?
GAP insurance should be a major consideration for you, if you are purchasing a vehicle using finance – this could be a private car or a commercial vehicle.
What is GAP insurance?
GAP insurance is a peace of mind policy that will cover the difference between the insurance payout and the outstanding amount owed on your finance agreement in the event that your vehicle is deemed a total loss. It can be a great way to protect yourself if the vehicle is stolen or damaged beyond repair.
At FleetCover, we can provide you and your business with a high quality GAP insurance policy for your fleet of vehicles
GAP insurance, or Guaranteed Asset Protection insurance, is an optional policy that covers the “gap” between the insurer’s payout if your car is written off or stolen, and the outstanding amount owed on your finance agreement.
How does GAP insurance work with a leased vehicle?
If your lease vehicle is declared a total loss, the GAP insurance will pay out the difference between the value of the vehicle at the time of loss and the remaining finance owed on the lease. For example, if the insurance company pays £8,000 for the loss of your car (based on the value at the time it was declared a total loss) and you have £13,000 remaining on your lease agreement, the GAP insurance will cover the £5,000 difference.
What types of GAP insurance are there?
There are two main types of cover for GAP insurance policies, which are:
- Finance and Contract Hire insurance: This is the most basic form of cover, which pays the difference between your car insurers’ settlement and the outstanding finance due for the lease car.
- Total Loss Top Up Insurance: For vehicles owned outright, if your vehicle is declared a total loss (a write off) by your motor insurer following an accident, fire or theft this policy will make a payment that increases the total loss valuation of your vehicle by 25%, up to a maximum amount of £10,000.
Is GAP insurance worth it on leased cars?
If your lease car was to be stolen or damaged, leaving you with no hire car, the amount you receive from your car insurer will not be as much as the outstanding finance on your lease agreement.
This means that you’ll either need to cover the shortfall yourself and pay off the outstanding debt, or keep paying your monthly hire instalments for a car you can’t even drive.
However, if you have GAP insurance, it will cover the gap between the remaining amount owed on the car lease and the sum your car insurance will pay out, leaving you debt free.
Also, we offer a number of different GAP policies and our Lease GAP policy covers your excess up to £250, and also provides you with a temporary replacement vehicle for up to 28 days once your claim is approved.
This is an important benefit because your insurer will take back any courtesy vehicle once their total loss offer has been accepted, which will leave you without a vehicle.
What’s included in GAP insurance on a leased car?
Subject to the policies of your GAP insurance provider, your GAP insurance may include:
- Up to £250 towards your motor insurance excess.
- On approval of your claim we will provide you with a temporary replacement vehicle for up to 28 days (not available on the Total Loss Top Up policy)Financial cover in the event that your lease car is written off, stolen or declared a total loss.
- The ability to settle your lease finance early without facing heavy charges from your leasing provider.
- Cover for your lease vehicle throughout the entire duration of your agreement.
- Cover for taking your lease car abroad.
- Option of one-off annual payment or 12 monthly direct debit payments, ensuring affordability.
How much does GAP insurance cost for a lease?
Our Total Loss Top Up starts from as little as £51.07 per vehicle per year.
Our Lease Gap policy starts from as little as £103.04 per year or £156.80 for 3 years.
The Financial Conduct Authority stopped the practice of car dealerships discussing GAP insurance with you and selling you the policy on the same day. There must be at least two clear days to allow you to think about whether you want to take the cover out.
Previously, a car dealership could quote and sell you the GAP insurance on the same day, leading to pressure on the consumer to purchase the policy there and then.
Dealerships used to make huge markups on these policies and therefore, they didn’t represent value for money in comparison to using a broker.
How long does GAP insurance last for with a leased car?
You can specify a GAP policy that can last anywhere from 1-5 years, depending on how long your lease agreement is for.
Most GAP insurance cover lasts 3 years, as this is usually the lease term for personal contract hire agreements.
How much GAP cover do you need for a car on lease?
To determine how much GAP cover you need, you should check the leasing company’s terms and conditions for the exact requirements.
You should ask about what its charges will be in the event that the vehicle is written off.
Some leasing companies charge between 50% and 100% of the outstanding rentals; you will need to clearly assess how much you would be charged to ensure your GAP insurance is sufficient.
FAQs about Gap Insurance on Leased Vehicles
Do I need GAP insurance if I pay cash?
If you pay with cash, there is no reason to buy GAP insurance as it is only designed to cover you in situations where you owe more than the car is worth.
However, our Total Loss Top Up policy is designed for vehicles that are not purchased on finance and will simply increase the total loss valuation of your vehicle by 25%, up to a maximum of £10,000.
If you own your vehicle outright, this policy would be suitable for you.
How does GAP insurance work on an electric vehicle?
There may be instances when GAP insurance on an electric vehicle is more expensive than conventional cars. However, as electric cars are becoming more common, the policies become more aligned with other cars.
Some reasons why a GAP policy can cost more for electric vehicles include:
- Electric cars are more expensive
- Electric cars can be prone to more damage
- Batteries can be expensive to replace
- Some repair shops are not equipped to handle electric vehicles
To learn more about our GAP insurance options, please get in touch with our friendly team. Alternatively, feel free to call us on 0345 224 5329.
