Do I Need Contract Hire GAP insurance?
Contrary to what your motor dealer and/or finance broker might tell you when trying to sell you their often much more expensive GAP insurance policy, not all Contract Hire agreements require GAP insurance. If you refer to the section above (how the finance company calculate their settlement figure) there'd almost always be a "shortfall" between the amount paid out by your motor insurer and the settlement figure calculated by the finance company.
However, as we touch on above, how much of that shortfall that you're actually liable for can vary considerably from one finance company to another. In terms of your potential liability, we've seen Contract Hire agreements which, in the event of the car being written of, hold "you" liable for:
If your Contract Hire agreement is such that you would be held liable for every single penny of any financial shortfall between the motor insurance payout and the Contract Hire Agreement settlement figure, we'd recommend that you take out a GAP insurance policy because the amount of any shortfall (particularly in the event of an early write-off) could well be substantial.
We've seen Contract Hire Agreements which specify that you're only liable for a specific percentage of the financial shortfall. We've also seen an agreement which said that the individual was only liable for a nominal £25 per monthly rental that had not yet been which would have fallen due if the vehicle had not been written off.
If your Contract Hire Agreement holds you liable for some of the financial shortfall, the requirement for GAP insurance is not necessarily entirely negated but, it could well mean that a shorter policy or, a policy with a lower claim limit would be more prudent for your needs. Not forgetting that you may well want to insure some or all of the initial rental that you paid when you started the lease agreement (see above).
This is far more common than many people think - in some cases even the motor dealers and/or finance brokers that are trying to sell you their usually much more expensive GAP insurance policies don't seem to be aware of it. One of our company directors recently leased a vehicle via a motor dealer which is part of a large, nationwide franchised dealer group and after taking delivery of the vehicle was on the receiving end of a number of letters and phone calls inviting him to purchase GAP insurance for £400.
When pressing them on whether the GAP insurance policy was necessary they insisted it was (numerous times) until he pointed out to them that the Contract Hire agreement they'd provided (and which was now in force) specifically outlined that he wouldn't be liable for any of the financial shortfall - albeit (we must stress) not accounting for any fees that may have come about through arrears, maintenance and excess mileage fees.
Nevertheless, if you have a Contract Hire agreement which doesn't hold you liable for any of the financial shortfall between motor insurance payout and settlement figure (arrears, maintenance and excess mileage fees aside), the need for GAP insurance is substantially reduced. You may even decide not to buy GAP insurance at all.
It's worth noting though that you may well still choose to take out a GAP insurance policy to cover some or all of your initial rental but this could mean that a policy with a minimal claim limit can be considered.
Still Unsure If You Need GAP insurance?
If you're still not sure whether you need Contract Hire GAP insurance (or what level of cover you need) please contact us for assistance and we'll be more than happy to guide you through the process of arriving at the most appropriate type and level of cover for you with absolutely no obligation on your part.