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  • FIRST POST
    • Addd
    • By Addd 15th Apr 18, 2:38 PM
    • 15Posts
    • 1Thanks
    Addd
    GAP Insurance
    • #1
    • 15th Apr 18, 2:38 PM
    GAP Insurance 15th Apr 18 at 2:38 PM
    Hello everyone. I'm currently leasing a car and I was wondering if I need GAP insurance? Id never heard of it until recently.
    Does it cost as much as your normal car insurance as well?


    Thanks. How good is this site by the way. Saved me loads of money .
Page 1
    • flashg67
    • By flashg67 15th Apr 18, 5:00 PM
    • 2,584 Posts
    • 1,695 Thanks
    flashg67
    • #2
    • 15th Apr 18, 5:00 PM
    • #2
    • 15th Apr 18, 5:00 PM
    You don't have to have it but I suppose it's like any insurance - only any good if you need to claim.

    Do some research to understand the different types, and avoid overpaying at a dealer - much cheaper to buy direct from the GAP provider.

    I bought it for my last new car and never needed it, but I know someone who had a 3yr old car written off, and used it to get the full purchase price back.(return to invoice GAP). Seem to recall I pad about 140 for 3 years cover.

    The most common type covers you for any shortfall in the insurance valuation and what you owe the finance company in the event of a total loss claim, which could be next to nothing, or several 000 depending on the car
    • lostinheaven
    • By lostinheaven 16th Apr 18, 1:38 PM
    • 189 Posts
    • 101 Thanks
    lostinheaven
    • #3
    • 16th Apr 18, 1:38 PM
    • #3
    • 16th Apr 18, 1:38 PM
    Hello everyone. I'm currently leasing a car and I was wondering if I need GAP insurance? Id never heard of it until recently.
    Does it cost as much as your normal car insurance as well?


    Thanks. How good is this site by the way. Saved me loads of money .
    Originally posted by Addd

    By "leasing a car" - do you mean that it's a Contract Hire Agreement with no option to purchase the vehicle (e.g. you have to hand it back at the end of the agreement term), or do you mean that it's a PCP (or other form of finance) agreement where you have a contractual option to purchase the vehicle (e.g. once you've made all of the repayments, the car becomes your property)?
    • Addd
    • By Addd 29th Apr 18, 10:25 AM
    • 15 Posts
    • 1 Thanks
    Addd
    • #4
    • 29th Apr 18, 10:25 AM
    • #4
    • 29th Apr 18, 10:25 AM
    By "leasing a car" - do you mean that it's a Contract Hire Agreement with no option to purchase the vehicle (e.g. you have to hand it back at the end of the agreement term), or do you mean that it's a PCP (or other form of finance) agreement where you have a contractual option to purchase the vehicle (e.g. once you've made all of the repayments, the car becomes your property)?
    Originally posted by lostinheaven




    The first one. I just make monthly payments and give the car back at the end of the term. Does this make a difference?
    • Nearlyold
    • By Nearlyold 29th Apr 18, 8:48 PM
    • 1,134 Posts
    • 961 Thanks
    Nearlyold
    • #5
    • 29th Apr 18, 8:48 PM
    • #5
    • 29th Apr 18, 8:48 PM
    It makes a difference in the type of Gap policy you need (assuming you want to buy GAP at all). A typical Contract Hire GAP will cover the balance of the remaining Contract Hire payments you may have to make if the car is written off.
    Last edited by Nearlyold; 29-04-2018 at 8:50 PM.
    • lostinheaven
    • By lostinheaven 30th Apr 18, 11:49 AM
    • 189 Posts
    • 101 Thanks
    lostinheaven
    • #6
    • 30th Apr 18, 11:49 AM
    • #6
    • 30th Apr 18, 11:49 AM
    The first one. I just make monthly payments and give the car back at the end of the term. Does this make a difference?
    Originally posted by Addd
    Yes. It makes a difference. Possibly such that you may not need GAP insurance at all.

    First of all, you need to be looking at Contract Hire GAP insurance rather than Invoice or Replacement GAP insurance (you can only have the latter two if you're buying the vehicle).


    However, not all Contract Hire agreements need GAP insurance. It'll depend on the terms of the Contract Hire agreement in relation to your liability to the finance company in the event that the vehicle is written off.

    As a general rule, if a lease vehicle is written off, the following happens:
    • Your motor insurer calculates what they think the car is worth (this will be the amount that they pay to the finance company)
    • In calculating the "Early Termination Fee", the finance company will calculate what they think your car is worth. Then they'll add/subtract from that, some/all of the following:
      • The sum of all of the monthly rentals that you've not yet paid.
      • An administration fee for wrapping the agreement up early.
      • A discount for settling early.
    If the motor insurer's payout isn't sufficient to clear the entire balance of the Early Termination Fee, there'll clearly be a shortfall. However, how each finance company treats this shortfall varies from one to another, as follows:
    1. Some will hold you liable for ALL of the shortfall (advisable to have GAP insurance)
    2. Some will hold you liable for SOME of the shortfall (I've seen this be either a %'age of the total shortfall figure or, a nominal cash amount per monthly repayment not yet paid - debatable whether GAP insurance is required at all or not)
    3. Some will hold you liable for NONE of the shortfall (I experienced this myself when I wrote a car off in December 2014. 3,800 shortfall but wasn't liable for any of it... clearly with this type of agreement GAP Insurance wouldn't normally be required)
    Overriding the above though is the small matter of your upfront/initial rental. E.g. in the event that a leased vehicle is written off, standard Contract Hire GAP insurance is designed such that the best case scenario is that you get to walk away from the agreement debt free but, you'll also have no car and, you'll need to find another lump sum to put down against a new lease on a new vehicle.

    That's where "Initial Payment/Rental Cover" comes in. You add it to the GAP insurance policy for a small additional premium and it ensures that if your car is written off, in addition to clearing the amount due to the finance company, you're also reimbursed a sum equal to the amount of the initial rental that you paid (normally up to a maximum of 3,000), which you can then use to start again.

    In short, depending on the sums involved and the wording of your contract, you may not need Contract Hire GAP insurance (or at least only require minimal cover) but, it may well still be prudent to have in relation to not having to put a dent in to your savings for another upfront lump sum (initial rental) on a new vehicle.

    HTH
    • tatmaninov
    • By tatmaninov 6th Jun 18, 7:19 AM
    • 2 Posts
    • 0 Thanks
    tatmaninov
    • #7
    • 6th Jun 18, 7:19 AM
    • #7
    • 6th Jun 18, 7:19 AM
    Lostinheaven, following on from your points, one element of GAP insurance that is not clear to me is the following; I am in the process of purchasing/leasing a vehicle with a 3 year PCP finance arrangement. If I chose not to take out GAP insurance and the vehicle is written off in the first 3 years. Assuming my insurance company give me a replacement vehicle or the cash to buy an equivalent vehicle (same model, year etc.) as the written off vehicle. Can I then hand this vehicle back at the end of the finance? i.e. in your experience/knowledge will the finance company/dealership require you to settle the finance if the original vehicle is written off or will they accept a like for like vehicle?
    • lostinheaven
    • By lostinheaven 7th Jun 18, 9:05 AM
    • 189 Posts
    • 101 Thanks
    lostinheaven
    • #8
    • 7th Jun 18, 9:05 AM
    • #8
    • 7th Jun 18, 9:05 AM
    Lostinheaven, following on from your points, one element of GAP insurance that is not clear to me is the following; I am in the process of purchasing/leasing a vehicle with a 3 year PCP finance arrangement. If I chose not to take out GAP insurance and the vehicle is written off in the first 3 years. Assuming my insurance company give me a replacement vehicle or the cash to buy an equivalent vehicle (same model, year etc.) as the written off vehicle. Can I then hand this vehicle back at the end of the finance? i.e. in your experience/knowledge will the finance company/dealership require you to settle the finance if the original vehicle is written off or will they accept a like for like vehicle?
    Originally posted by tatmaninov

    OK so... to avoid any confusion for others reading this thread, a Lease and a PCP agreement are two separate things.

    Lease = "Contract Hire". A rental/hire agreement for a fixed period after which the car is returned to the finance company. There's no contractual option for you to become the owner of the vehicle.

    PCP = "Personal Contract Purchase". A HP agreement with part of the purchase price of the car offset in the form of a lump-sum to pay at the end of the agreement (if you wish to keep/own the vehicle) but, you have the right to hand the car back at the end and walk away if you find that the car is actually worth less than the lump sum figure.

    With either type of agreement, if your vehicle is written off and your motor insurer is paying out a cash lump sum, some or all of that payout will go directly to the finance company depending on the settlement figure quoted by the finance company.

    With a PCP agreement, if there are excess funds (i.e. the motor insurance payout is greater than the settlement figure) those excess funds will be paid to you. With a Contract Hire agreement, any excess funds will usually be kept by the finance company.

    If however, your motor insurer has offered to deal with your write off claim by way of providing you with a physical new-for-old replacement vehicle (e.g. lots of motor insurance policies cover a brand new vehicle on a new-for-old basis during the first year of ownership, some even do this for the first two years of ownership - though, there are various potential pitfalls), whether the finance company accept the replacement vehicle and move the security of the existing finance agreement to the new vehicle, very much depends on the finance company themselves. They get the deciding vote in so much they have the right to either accept the offer of a physical replacement vehicle or, to insist that they want a cash settlement instead. You'd need to speak with your own finance company to establish their approach to such circumstance.

    The question then becomes... if you're offered a brand new replacement vehicle by your motor insurer as part of a write-off claim and the finance company insist they want a cash settlement instead... how will your motor insurer calculate the claim value?

    • Will it be a market value payout (in which case you're probably going to wish you had GAP insurance place)?

    • Will it be a cash payout based on the original invoice price that you paid for your vehicle (in which case you might wish you had Replacement GAP insurance in place)?

    • Or will it be the cash equivalent of what it would cost to replace the vehicle with a brand new equivalent (in which case, you might choose not to have GAP insurance in place)?

    In short... with a vehicle that is the subject of a secured finance agreement, the finance company is king. Therefore you need to check with the finance company to see what they would do in the event that your vehicle was declared a Total Loss but, the motor insurer offered to deal with your claim by providing a physical replacement vehicle rather than a cash payout. Would they accept the replacement vehicle or, would they want their money?

    If this is a brand new vehicle that you're buying and we're talking about the prospect of your motor insurer replacing it with a brand new vehicle at the time of a claim within the first year (or two - depending on the insurer), it may be the case the finance company is more inclined to accept the replacement brand new vehicle - afterall they'd potentially be getting a newer and therefore more valuable vehicle back at the end of the agreement (although some always insist on the cash, regardless)... anything beyond that though I reckon the finance company will almost certainly insist on a cash settlement.


    Or...


    Buy GAP insurance.




    PS... coming back to my comments at the beginning of this post... not all Lease/Contract Hire agreements require GAP insurance - but that's another story.
    • Silvertabby
    • By Silvertabby 7th Jun 18, 9:26 AM
    • 3,267 Posts
    • 4,754 Thanks
    Silvertabby
    • #9
    • 7th Jun 18, 9:26 AM
    • #9
    • 7th Jun 18, 9:26 AM
    We've had 2 PCP cars and in each case the (same) dealer threw in 3 years GAP as a freebie.
    • lostinheaven
    • By lostinheaven 7th Jun 18, 9:51 AM
    • 189 Posts
    • 101 Thanks
    lostinheaven
    We've had 2 PCP cars and in each case the (same) dealer threw in 3 years GAP as a freebie.
    Originally posted by Silvertabby

    If it's a genuine freebie, that's fine (with the exception of the fact that GAP insurance from a motor dealer is almost certainly an inferior type of cover that you can get from a specialist broker), however, anyone contemplating apparently "free" GAP insurance from a dealer needs to be relatively careful with this... free GAP insurance from a motor dealer is rarely actually "free" and actually, can potentially end up costing you.


    When a dealer offers to provide "free" GAP insurance it's usually after they've tried to sell you the policy for a premium. For example, if they'd originally offered you GAP insurance for say, 400 on a 20k vehicle and you declined, they might then agree to throw it in free to persuade you to sign on the line.


    In most cases, you'd therefore expect that your final invoice to reflect (on a line-by-line basis), the following:
    • New car: 20,000
    • GAP insurance: 0.00
    • Total Price: 20,000
    However, in the considerable majority of cases, what you'll actually find is the following:
    • New Car: 19,600
    • GAP insurance: 400
    • Total Price: 20,000
    On face value, this might not seem like a big deal but, fast-forward to a short while in the future when your car has been written off and you're then claiming on your *Invoice* GAP Insurance policy that you bought from the dealer... a policy that only covers you up to the price that you paid for the car AFTER discount and excludes cover for the cost of supplementary products (such as the GAP insurance policy itself) and you'll find that as per the above, you've got a policy that's only covering you to the 19,600 discounted price that your invoice actually shows that you paid for the vehicle itself. In short... that 400 you saved is being paid for (albeit in the event of a claim) out of your own pocket.


    The lesson here is that if a dealer offers you GAP insurance for free, ensure that it is actually shown on your invoice as "FREE".


    Alternatively... if you want to play the system... you can
    • Accept the dealer's figures showing (in this example) 19,600 for the car and 400 for their inferior Invoice GAP insurance policy.
    • Take delivery of the vehicle and incept their policy
    • Upon receipt of the GAP insurance paperwork, immediately refer to the cancellation instructions for the policy and cancel it within your cooling off period
    • Receive a refund of the full 400 that your paperwork says that you paid for it (note that in very few cases you *may* be charged a small administration fee).
    • Use that 400 to purchase an often considerably cheaper though superior Invoice GAP insurance policy or, better yet, a superior still Replacement GAP insurance policy, from a specialist GAP insurance broker.
    • Pocket the difference.
    • Erbert
    • By Erbert 7th Jun 18, 12:10 PM
    • 1 Posts
    • 0 Thanks
    Erbert
    Well I decided to go for GAP ins via MSE link and the discount code saved me 59.
    Result!
    • lostinheaven
    • By lostinheaven 7th Jun 18, 12:46 PM
    • 189 Posts
    • 101 Thanks
    lostinheaven
    Well I decided to go for GAP ins via MSE link and the discount code saved me 59.
    Result!
    Originally posted by Erbert

    When I looked at the same, the MSE discount code only brought their price down to about the same full-price that it'd have cost me to buy the same policy from almost any other online provider



    E.g. it's only a "result" if it's a genuine saving...



    I'd be interested to know your vehicle value, the policy type, duration, claim limit and price paid and how the end result would then compare to the same policy from other providers.
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