Ever had someone try to sell you GAP insurance, and wondered what it is?
Or if you know what it is, then does it work any differently for a lease car?
As your friendly neighbourhood leasing experts, that's what we're here to answer.
Do I Have to Pay Insurance When Leasing a Car?
Yes, insurance is compulsory.
Just like with any other vehicle, the driver of a lease car needs to have at least third-party car insurance to be able to drive legally on the roads. (However, we'd always advise you to go for a fully comprehensive insurance policy and not just third party.)
You'll have to arrange the car insurance cover yourself and ensure that the lease car is insured from the very first day of the contract, right up to the very last day. When it comes to setting up the car insurance, the process is similar to any other vehicle, except that you'll need to inform the insurer that it's a lease car. This will usually be an option you'll be able to tick on their quote forms.
So, What Is Gap Insurance?
GAP insurance (or Guaranteed Asset Protection insurance) isn't like ordinary cover.
It's an optional insurance cover for when your car is stolen or written off.
GAP insurance covers the difference between what your car is worth at the time of the write-off and the amount of money that you've still got to pay as part of the leasing contract.
Take this example . . .
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Suppose you crash or write-off a lease car that's has a current market value of £6,000 at the time of the incident.
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It was originally worth £11,000 when you signed the lease contract, and say you've paid off £7,000 of that.
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Therefore, you'd have to pay back the outstanding finance of £4,000.
That's where GAP insurance comes in. It means that you don't have to pay back that remaining £4,000.
Instead, that money comes straight out of the pocket of the insurance company, so yay for you! (And, nay for them?)
Should I Get Gap Insurance On a Lease, And Is It Worth It?
Since GAP insurance is optional, there's no law requiring you to take out GAP insurance on a lease car. However, it could well be worth it.
It's a bit like a high-stakes game of poker . . .
Your lease could go well with nothing bad happening, meaning that the money you've spent on GAP insurance (usually £200-£300) has essentially gone towards nothing.
But if you don't have GAP insurance and something bad DID happen that resulted in a total write-off, then you could potentially have to dish out way more money than the £200-£300.
So GAP insurance can be good as a safety net if things do go wrong, which with cars they often do. You won't be stuck covering the cost of the car if the vehicle is stolen, lost or declared a total loss, and that always provides peace of mind.
How Much Does Gap Insurance On a Lease Car Cost?
GAP insurance costs can vary from provider to provider, so make sure you act money-smart and shop around for the best quote that provides the level of car you need.
That being said, you're generally looking at a GAP insurance cost of between £100 and £300 for three years worth of coverage. (Of course, that's on top of any mandatory insurance you'll pay, like third-party, fire & theft or comprehensive cover.)
Luckily enough, you can get a free quote from insurers in order to obtain an estimate of how much it would cost you to get GAP insurance. Most have an online service that can give you a quote in minutes.
When it comes to paying for GAP insurance, some insurers let you pay in 12 monthly instalments whilst others request a one-off payment, so weigh up which option is the most suitable for your budget.
How Long Does GAP Insurance Last?
The most common term is 3 years, mostly because it's also the average length of a finance agreement. However, GAP insurance cover can range from anywhere from 2 to 5 years, so there's plenty of room to be flexible. Always shop around for the policy that best suits your needs.
Where Can I Get GAP Insurance?
Banks, dealerships, finance and leasing companies, as well as regular insurance companies all offer some sort of GAP insurance.
Try not to be persuaded by dealerships into signing up for their GAP insurance. They've been known to offer steep prices and 'haggle' customers into additional extras which can be found much cheaper elsewhere.
Instead, follow the advice of the Financial Conduct Authority (FCA) and take some time to shop around the market to ensure that you're getting the best deal from the right GAP insurance provider. In fact, the FCA does not allow car dealerships to sell GAP insurance for at least 2 days after a vehicle is purchased, giving customers time to browse the market.
When Does GAP Insurance Apply?
GAP insurance policies can provide necessary financial protection in the following situations, especially when dealing with new cars that tend to have a fast rate of depreciation. (Note: all lease cars tend to be new!)
Theft
Suppose you purchased a used car for £20,000 with a loan, and the car is stolen 2 years later. At the time of the theft, your insurance company assessed the car's value at £10,000, leaving you with £10,000 still to pay. GAP insurance covers it instead, saving you the burden.
Accident
Say you lease a second-hand hatchback, but two years into the lease it gets declared a total loss due to an accident. The market value of the car at the time is far less than the remaining balance on the lease. But thanks to GAP insurance, you won't have to worry about paying up the difference.
Rapid Depreciation
Let's suppose you buy a used prestige car with a high rate of depreciation. The car's value drops dramatically in the first year, and if you got involved in a collision resulting in a total write-off, the standard insurance pay-out would fall short of the loan balance. Luckily, GAP insurance covers the shortfall, saving you from a hefty financial loss.
Are There Different Types of GAP Insurance Available?
Return to Invoice GAP Insurance
The most popular type of GAP insurance coverage, this policy makes up for the difference between the sum paid out by your insurer and the original value of the car or the amount that you owe to the finance company (whichever is higher).
Return to Value GAP Insurance
Typically offered on privately-bought cars, this policy pays out the gap between the purchase value of the start when you started the policy and the total loss payment.
Finance GAP Insurance
Finance GAP insurance is designed for cars bought on a finance agreement, such as a loan. The policy will cover part of the debt that you owe on the vehicle, and is normally offered as a package deal with RTI GAP insurance.
Lease GAP Insurance
Lease GAP insurance pays out the difference between the outstanding balance on your lease or any extra fees that might apply by ending the lease contract early, and what your insurer is willing to pay out. This product is only designed for HR, PCP, lease or contract and hire vehicles.
Vehicle Replacement GAP Insurance
Vehicle replacement GAP insurance provides the fullest form of GAP coverage. This policy bridges the difference between the insurance company's estimated value of your vehicle and whichever is highest out of the following:
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The invoice price of the vehicle when it was originally purchased
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The outstanding finance on the vehicle when the claim is made
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The cost of replacing the vehicle with the same specifications as the original car
Bottom Line: Is GAP Insurance Worth It In the UK?
The longer your lease term, the more GAP insurance will probably be worth it as you won't have paid off a lot of the finance and you'll have much more to lose should the vehicle be declared a total loss.
On the other hand, if your lease term is very short or you wouldn't mind paying off the difference in the event that your lease car is stolen or written off, then you might not actually need GAP insurance, meaning you'll get to spend that money on something nice!