What is a Finance/Contract Hire/ Lease Gap Insurance Policy?
This is a question I am asked on a daily basis. Firstly this is a very specialised gap insurance policy to cover vehicles that have been purchased using a financing arrangement. When buying any insurance policy the first
thing to consider is does this policy meet all my needs adequately?
Standard gap policies generally require you to be the registered keeper or owner of the vehicle. Finance Gap Insurance is a more specific and states that you can either be the owner and registered keeper of the vehicle or the main driver for lease and contract hire purposes.
This is a very overlooked point but a very valuable one to consider as purchasing the wrong type of policy may invalidate any claim you need to make. General Return to Invoice and Vehicle Replacement Gap Insurance policies are for people who are purchasing a vehicle using cash, bank loan, traditional hire purchase or a PCP (Personal Contract Purchase). In all of the above cases you will become the owner of the vehicle and will be the registered keeper of the vehicle. All the above policies will require you to declare that you are the registered keeper of the vehicle in the small print.
For a car that is being hired using a personal /business lease or contract hire arrangement you will never become the owner of the vehicle. Under this arrangement you are simply hiring the vehicle from a company for a fixed amount of time. This arrangement is technically no different to renting a house, lawnmower or power drill. In terms of being the registered keeper of the vehicle this will vary between the provider. The majority register your name on the log book but with their address so they retain the V5 document. Others are more lenient and will put you as the registered keeper of the vehicle at your home address. In some cases the V5 will be in the name of the contract hire company at their address. This has become less common due to insurance issues and the database used by the police for tracing owners and insurers etc.
So why do you need any further insurance after your fully comprehensive motor policy?
It is a little known fact that in the event you have a total loss in a vehicle that is under a contract hire or lease agreement that you will be liable for the future value of the vehicle plus a percentage (or all) of the outstanding rentals under the hire/lease agreement.
Let's take an example: Mr Smith get a contract hire agreement on a new Ford Mondeo for 3 years paying 300 per month for the vehicle. The car is written off after 12 months in a non fault road accident. The insurance company values the car at 15,000. The contract hire company settlement is the future value of the vehicle being 14,000 and the outstanding instalments of 24 x 300. He has a settlement figure of 21,200. This leaves the customer with a shortfall of 6,200. So he has no vehicle also lost any upfront payment and to add insult to injury he has to find this enormous sum just to clear his liability to the contact hire provider.
So what is the solution?
Make sure you adequately protect yourself with a Finance Gap Insurance policy! You take an insurance policy to cover the difference between the motor insurance payout and the settlement figure from the lease / contract hire provider in the event of a total loss. In the example we looked at above the gap insurance policy would pay the difference in the settlement balance of 6,200.
This would have cost the customer approximately 100 to insure this shortfall thus avoiding a very stressful situation and a crippling payout from his own pocket. This type of insurance also has the benefit of providing 250 towards any motor insurance excess and will also cover any driver providing they are covered by a fully comprehensive motor insurance policy.
As an industry first specialist brokers will provide Finance Gap Insurance cover no matter how long you have owned the vehicle for. Even on a five year lease if you decide you want cover at two years they will provide this cover for the last three years of the contract.