GAP Insurance for a Leased Car

  The GAP in GAP insurance actually stands for Guaranteed Asset Protection, but is now usually understood as describing insurance that provides coverage for the gap between the payout made by your car insurance company for total loss or theft and the real value of the car. Effectively it is protection against the effects of depreciation in the first 2-3 years of your vehicle's life.

As with all insurance, such as your home buildings or contents insurance, it is an extra expense that you probably do not want to have, but can become a significant benefit when unfortunately you need to claim against it at a future date.

A question many new users of lease vehicles ask is why GAP insurance is necessary on top of their comprehensive car insurance, particularly when they have just paid out a large amount of money as their initial deposit payment. However, the problem is the fact that comprehensive car insurance is not comprehensive in all situations for a lease car.

This is because when an insurance company classifies a car as a “total loss” , after either theft and non-recovery or damage to the vehicle that is assessed to cost more than is economic to repair, if comprehensive insurance is in place they will offer only what they consider the current market value of the car. This is an issue for the owner of a lease car as their liability to the leasing company at that point of the insurance payout may be significantly more.

The reason this situation can occur is due to the effect depreciation has on the value of a car in its early life. Although a lease car may have a value of £20,000 in a car dealer's showroom, the moment it goes onto the road it starts to lose value, typically 20% to 30% in the first year. If the vehicle is stolen or involved in an accident and considered a total loss after say six months into the lease, the assessed value could be 80% of the showroom value, say £16000. However as only 6 months of lease payments have been made, the amount owing to the lease/finance company could be several thousand more, which needs to be paid by lease holder. GAP insurance covers this difference.

There are several types of GAP insurance including RTV (Return to Value), VRI (Vehicle Replacement Insurance) and RTI (Return to Invoice). For a lease vehicle the insurance to choose is RTI, which pays the difference between an insurer's settlement and the original invoice price. This ensures that with the insurance payment the full amount on the original invoice is available to recompense the finance company and eliminate any risk of loss.

When a car is leased from a dealer the salesperson will try to sell GAP insurance at the same time as the vehicle. This is because salesperson and dealership will both make some commission on the insurance sale (sometimes more than they make on selling the car!) This is an easy way to purchase the insurance, just requiring a few more signatures at the time of picking up the car. However it means paying significantly more than necessary.

An alternative is to go through a general insurance company, many of which now offer GAP insurance as a product. As insurance is a very competitive market, the cost is usually much lower, and the insurer can often offer monthly payments.

A third choice is to use a GAP insurance specialist, the easiest way to find one is simply to search for one using the terms “GAP insurance” in your preferred search portal. As wholesalers for GAP Insurance, specialists are often the lowest cost, but not always, so it is worth comparing.

Which ever route you choose, if you are going to lease a car, particularly a high value car, ensure you are covered, it can save a lot of expense at a later date.