Gap insurance. How does it work on a personal lease?
Discussion
Past couple of cars I purchased I took gap insurance. Last 3 years, if car was a write off or nicked I would get the difference between insurance value and purchase price. So if I paid 20k and it was worth 12k then would pay 8k shortfall. Simple.
What happens with a lease? The prices are cracking so clearly a heavy discount has been had by the finance company who the lease company use. Without gap what happens? Do they have a purchase price and some form of linear residual that I would pay over the tenure of the lease? If in negative equity then I would pay in total loss scenario? Or do they tend to cut the losses, and terminate the lease there and then.
Gap isn't about profiteering, but if the car was stolen based on purchase price I would have a few extra grand in my pocket. Can't see how this can work for lease. Anyway, keen to hear your thoughts. This personal lease lark throws up lots of questions.
Yes I am buying a BMW, and yes I am worried about it getting pinched.
What happens with a lease? The prices are cracking so clearly a heavy discount has been had by the finance company who the lease company use. Without gap what happens? Do they have a purchase price and some form of linear residual that I would pay over the tenure of the lease? If in negative equity then I would pay in total loss scenario? Or do they tend to cut the losses, and terminate the lease there and then.
Gap isn't about profiteering, but if the car was stolen based on purchase price I would have a few extra grand in my pocket. Can't see how this can work for lease. Anyway, keen to hear your thoughts. This personal lease lark throws up lots of questions.
Yes I am buying a BMW, and yes I am worried about it getting pinched.
There are three main types of GAP insurance and you need to decide which one would best suit. Also check with the finance provider if they offer this as part of the agreement, some do but check the cost as it can be more expensive than if you buy it separately. I copied the below from the money advise website as the descriptions are more succinct than I could type at this time in the morning!
Finance GAP insurance. If you’ve borrowed money to buy the car, you might still owe more than the insurance company will pay out. Finance GAP insurance pays the finance company enough to cover your debt – you’ll be left with no car and no money, but at least you won’t be in the red.
Return-to-invoice insurance. This is designed to top up the payment from your car insurance so that you get back exactly what you paid for the car (or any outstanding finance). This type of policy can be bought for both new and older cars.
New car (or ‘vehicle replacement’) GAP insurance. This is like return-to-invoice insurance, but it’s designed to compensate for the rising cost of cars. New car GAP insurance makes sure you get your money back plus a bit more, so you can replace your car for a new one of the same model and specification. This type of policy can only be bought for new cars.
Of the three options, new car GAP insurance gets you the biggest payout, but you’ll probably find it’s the most expensive.
Finance GAP insurance. If you’ve borrowed money to buy the car, you might still owe more than the insurance company will pay out. Finance GAP insurance pays the finance company enough to cover your debt – you’ll be left with no car and no money, but at least you won’t be in the red.
Return-to-invoice insurance. This is designed to top up the payment from your car insurance so that you get back exactly what you paid for the car (or any outstanding finance). This type of policy can be bought for both new and older cars.
New car (or ‘vehicle replacement’) GAP insurance. This is like return-to-invoice insurance, but it’s designed to compensate for the rising cost of cars. New car GAP insurance makes sure you get your money back plus a bit more, so you can replace your car for a new one of the same model and specification. This type of policy can only be bought for new cars.
Of the three options, new car GAP insurance gets you the biggest payout, but you’ll probably find it’s the most expensive.
Over the years many of my clients who have had a lease car or van, have had a total loss claim during the period of the lease. In every case the lease firm have accepted the insurers market value claim settlement as full and final settlement of the agreement. If you have an excess on your comp policy, this will be deducted from the claim settlement so you will have to pay that to the leasing firm, and your insurers will sent the total loss chq directly to the leasing co. Job done. No need for GAP cover.
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