Gap Insurance is an insurance policy that covers the difference between what is owed on a car, and the amount that your insurance company will pay out, in the event that your vehicle is written off or stolen. It is an important consideration for anyone thinking of Leasing a Car.
How does Gap Insurance work?
If your Lease Vehicle were to be written off or stolen (and not recovered) during your contract period, you would have to settle the finance agreement with your leasing company, who will provide you with a settlement figure.
However, you may not realize that your insurance company will only pay out the current market value of your car at the time of the loss, and there is a risk that this figure will be less than what you owe to the finance company. The difference could be as much as a few thousand pounds, and Gap Insurance protects you against this eventuality.
This situation can arise because vehicles tend to depreciate more quickly in their first year, and then at a slower rate as they get older.
This does not just apply to Car Leasing, but could be equally applicable if you had financed your vehicle on Hire Purchase. So don’t be put off Leasing a Car because of this. See our sections on Leasing vs Buying and Benefits of Leasing a Car.
Do I need Gap Insurance?
With Car Leasing, it’s important to consider Gap Insurance.
Gap Insurance is an optional car leasing insurance product which is not part of your normal car insurance policy. So, the ‘fully comprehensive’ insurance policy you took out on your Lease Car (required on all lease vehicles) does not include Gap Insurance.
Like any insurance product, Gap Insurance is designed to protect you from a potential future risk that may or may not happen. If you did find yourself in the unfortunate situation of having your car written off or stolen, your Gap Insurance policy could save you thousands of pounds.
Car Leasing Insurance
It is necessary for your Lease Car or Van to have fully comprehensive car leasing insurance, because you are effectively driving someone else’s vehicle. ‘Third Party’ and ‘Third Party, Fire & Theft’ policies are not acceptable to leasing companies.
Not all insurance companies will insure Lease Vehicles, as some will only insure you if you are the ‘registered owner’ of the vehicle. In the case of a Lease Car, the leasing company is the registered owner while you are the ‘registered keeper’.
Although this may make finding competitive car leasing insurance a little harder, you should still be able to find the best quote by using a comparison website. Also, there are a number of specialist motor insurers in the market who offer business and personal car leasing insurance for your new leased car or van.
Credit Protection Insurance
Credit Protection Insurance is an insurance policy that offers you payment protection if you are unable to continue making payments to your leasing company for your Lease Vehicle.
If your personal circumstances suddenly change, you may find yourself under serious financial pressure at a difficult time, and Credit Protection Insurance could help to alleviate the situation.
Credit Protection Insurance usually covers your lease payments in the following situations:-
If you are unfit to work due to an accident or sickness
The outstanding finance is usually settled if you fall critically ill
Your payments are covered for a certain period if you are made redundant
The outstanding finance would usually be settled if you were to die
Please note that the above information is just meant to give you a general guide to the insurance products mentioned, and you should make your own enquiries to insurance providers in order for you to decide whether any of these products are right for you.