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Cover the remaining balance of your lease in the event of write-off

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What is Contract Hire GAP insurance?

If your vehicle is the subject of a Contract Hire / Lease agreement and is declared a Total Loss (written off) through accident, fire, theft or flood your Motor Insurer will pay out only what they think your vehicle is worth at the time of claim.

In the meantime your finance company will have calculated their settlement figure which, would normally be a combination of some or all of the following:

  • The amount that the finance company think your vehicle was worth at the time of loss
  • The sum of anything up to 100% of the as yet unpaid rentals under your Contract Hire agreement at the time of loss.
  • Administration & or penalty fees for wrapping up the agreement early.

Your Motor Insurance payout might well fall short of this figure. If it does your finance company might hold you liable for anything up to 100% of the shortfall and this where Contract Hire GAP insurance steps in... to pay the difference between your Motor Insurance payout and the amount required to settle the remaining balance of your Contract Hire agreement.

In addition, for a small additional premium, you can also choose to cover up to £3,000 of the initial rental you paid as part of your Contract Hire agreement, meaning that you'd be reimbursed some or all of your initial rental for you to use against the cost of setting up a new Contract Hire agreement on a replacement vehicle.

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:

  •  All of the shortfall

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.

  •  Some of the shortfall

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).

  •  None of the shortfall

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.

Am I Eligible For Contract Hire GAP insurance

You can buy Contract Hire GAP insurance to cover a New or Used car that:

  • Is covered by a comprehensive motor insurance policy.
  • You are named on the lease/contract hire agreement of.
  • Is less than eight (8) years old at the start date of this policy.
  • You have not yet taken delivery of or, you took ownership/delivery of within the last 6 months.
  • You have NOT changed in any way from the vehicle manufacturer's standard specification, unless the vehicle has been modified for mobility purposes. This would include changes to the bodywork, such as spoilers or body kits, changes to the suspension or brakes, and changes affecting performance such as engine management. Graphics applied to your vehicle are acceptable.
  • Has not been declared a Total Loss before the start date of this policy.
  • Is registered in the UK.
  • Has a P11d value of no more than £150,000.
  • Is not a commercial vehicle.
  • Is not being used for rallying, racing, any competitive events or for emergency use or hire (including private hire, taxis and chauffer) or for driving school tuition.
  • Is not already covered by a GAP insurance policy.
  • Is the subject of a Contract/Lease Hire Agreement.
  • Is not a specifically excluded vehicle.
  • Is not a van, car derived van, motorcycle, motorhome or campervan.

So long as you:

  • Are a permanent resident in the UK or a UK registered company.

You can NOT buy Contract Hire GAP insurance for a vehicle that:

  • Is not covered by a comprehensive motor insurance policy.
  • You are not named on the lease/contract hire agreement of.
  • Is more than eight (8) years old at the start date of this policy.
  • You took ownership/delivery of more than 6 months ago.
  • You have changed in any way from the vehicle manufacturer's standard specification, unless the vehicle has been modified for mobility purposes. This would include changes to the bodywork, such as spoilers or body kits, changes to the suspension or brakes, and changes affecting performance such as engine management. Graphics applied to your vehicle are acceptable.
  • Has been declared a Total Loss before the start date of this policy.
  • Is not registered in the UK.
  • Has P11d value of more than £150,000.
  • Is a commercial vehicle.
  • Is used for rallying, racing, any competitive events or for emergency use or hire (including private hire, taxis and chauffer) or for driving school tuition.
  • Is already covered by a GAP Insurance policy.
  • Is not the subject of a Contract/Lease Hire Agreement.
  • Is a specifically excluded vehicle.
  • Is a van, car derived van, motorcycle, motorhome or campervan.

Contract Hire GAP insurance policy features.

  • Aims to pay the difference between Motor Insurance payout and the amount required to settle the outstanding balance of your Contract Hire Agreement.
  • Ability to cancel the policy at any time and receive a daily pro-rata refund of unused premium (a cancellation fee may apply).
  • OPTION to include cover for up to £3,000 of the Initial Rental that you paid at the start of your lease.
  • Underwritten by DTW 1991 Underwriting Limited on behalf of Syndicate DTW1991 at Lloyd's.
  • Available for Cars up to 8 years old, that you took delivery of within the last 180 days.
  • Pays up to £250 towards the excess on your Comprehensive Motor Insurance policy.
  • FREE transfer of any unused premium on to a new policy on a replacement vehicle.
  • Available for Cars bought for up to £150,000.
  • Policy durations of up to 4 years available.
  • Claim Limits of up to £75,000 available.
  • FREE policy amendments.
  • NO Market Value clauses.

What Claim Limit Do I Need?

Choosing a suitable minimum Claim Limit for a Contract Hire GAP insurance policy requires a little calculation. In short, you need to know the total amount of rentals that you are (at the time of purchasing the GAP insurance policy) yet to pay under the Contract Hire Agreement. Thus, we'd follow this process:

  • How much is the initial rental payable? (Let's say this is £900)
  • How much are your normal monthly rentals and how many do you have to pay? (Let's say these are £300 per month and that you'll be paying 35 of them)
  • £900 + (£300 x 35) = £11,400.

In the above example, we'd determine that assuming you'd be liable for 100% of any potential shortfall between the Motor Insurance payout and the settlement figure of your Contract Hire agreeent, you'd need to be looking for a GAP insurance policy with a minimum Claim Limit of £11,400. In our case that means you should consider a policy with at least a £12,500 Claim Limit because the next level down is £10,000 and would be lower than the £11,400 calculated above.

To sum up, tot-up the total value of all rentals due under your Contract Hire Agreement, deduct from that figure the sum of any/all rentals that you've already paid. We then recommend that you choose a GAP insurance policy claim limit of no less than that resulting figure.

If you need any help with this, please do get in touch.