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Do I Need Gap Insurance on a Lease Car in the UK? (2022)

Written by, Marija Petkova

Updated June, 8, 2022

Do I need GAP insurance on a lease car?

Even though GAP insurance is not required, it can be a great way to protect yourself if the leased vehicle is stolen or damaged beyond repair. 

GAP insurance on a lease car covers the difference between the amount you owe on your lease and what your insurer will pay out in the event the vehicle is declared a total loss. 

Here is what you need to know about leased cars and GAP insurance, from what the policy covers to how much it costs.

What Is GAP Insurance for Cars?

GAP insurance is short for Guaranteed Asset Protection insurance. It’s an optional policy that covers the gap between the insurer’s payout if the car is written off or stolen and the amount you paid for the car or outstanding debt if you have finance. 

What are the main types of car finances and what credit score do you need for a car loan? Read all about it in this guide

If your vehicle is damaged beyond repair in an accident, fire, flood or is stolen, i.e. declared a total loss, your main insurer will pay out a figure covering the car’s worth at the time it was declared a total loss. 

However due to vehicle depreciation (the rate at which your car’s value decreases over time), what your insurance company pays out may not be enough to cover the amount that you still have outstanding on your lease. The insurer’s settlement will also likely be lower than what you originally paid for the vehicle. 

GAP insurance will bridge that gap, ensuring that you are not at a loss.

Do You Need GAP Insurance on a Lease Car? 

The finance provider or your lease deal does not require you to take out GAP insurance. However, this coverage comes with many benefits, the biggest one being peace of mind—with a car lease GAP insurance, you will not be stuck covering the cost of the car or repaying the outstanding finance balance if the vehicle is lost, stolen or damaged. 

Here is an example of how GAP insurance works with a lease car (note that all figures are for illustration purposes only)

  • The insurance company pays £7,000 for the loss of your car (based on its value at the time it was declared a total loss); 
  • You have £12,000 remaining on your lease agreement.
  • GAP insurance for a lease car will cover the £5,000 difference

Note: Even if you are leasing a car and have taken out GAP insurance, you still need to have regular motor insurance. To find out what happens if you are caught driving without insurance, take a look at this article. 

What Does GAP Insurance for a Lease Car Include?

The conditions offered vary from one provider to the next, so it’s essential that you shop around and see which insurer has the best terms. 

Typically, GAP insurance providers in the UK offer the following: 

  • Financial cover if your lease vehicle is written off, stolen or declared a total loss;
  • Coverage of administration and/or penalty fees if you want to end your lease agreement early;
  • Coverage for using a leased car abroad; 
  • Coverage for other drivers named on the fully comprehensive insurance policy;
  • Up to 3 months rental payment of £2,500 (VAT included) as contribution towards a replacement vehicle (if you want to lease another car after your previous vehicle was totalled or stolen);
  • Car insurance excess up to £250;
  • Road Fund License contribution up to £100.

Most car insurance providers do not charge a fee for amendments to the policy, or transfers of unused premiums to a new policy for a replacement vehicle.

It is a good idea to see if your main insurance provider offers GAP insurance as most companies give discounts when you renew your existing policy or take out additional ones. 

Note: Unlike other types of insurance that can be renewed automatically, when GAP insurance expires, there is no option to renew or extend the same policy. 

Exclusions to GAP Insurance for Lease Cars

There are certain situations and vehicles that cannot be covered by GAP insurance. 

These include, but are not limited to:

  • Vehicles covered by a third party policy or third party, fire and theft insurance. To get GAP insurance, you must have fully comprehensive coverage;  
  • Cars worth more than £75,000;
  • Vehicles that have been used for more than 100,000 miles when the policy was bought;
  • Vehicles older than 10 years;
  • Cars that are not registered and/or used in the UK;
  • Cars that have been modified to include bigger exhausts, spoilers or alloy wheels. In general, any modifications that move away from the manufacturer’s specs will affect your car insurance premium; 
  • Vehicles that have been used  for commercial purposes, such as taxis, courier or delivery vehicles, private and public rental vehicles or vehicles used for racing or competitions;
  • Commercial vehicles over 3500kg, motorcycles, mopeds, or scooters. 

GAP insurance for leased vehicles will also not provide coverage if 

  • The motorist has been driving under the influence of alcohol and drugs;
  • The vehicle was damaged while carrying out fraudulent/illegal activities;
  • The vehicle was damaged as a result of willful negligence (such as leaving the keys in the ignition in an unattended car);
  • The vehicle was stolen by someone who had the keys.

GAP insurance for a leased car also does not cover insurance premiums, road tax, and warranty charges. 

It’s best to check with your chosen insurance provider for a full list of exclusions as these conditions vary among insurers. 

How Much Does Gap Insurance on a Lease Car Cost? 

The cost of GAP insurance depends on several factors, including the value of the car, the length of the lease and the type of GAP insurance you wish to take out, as well as your chosen insurer. 

In general, the more expensive the car is, the higher the policy will be. 

The cost of GAP insurance in the UK usually ranges between £100 and £300 for three years of coverage. This is on top of the mandatory motor insurance you pay, which is an average of £417, the latest car insurance statistics show.

To get an estimation of how much it would cost to get your car covered by GAP insurance, get a free quote from insurers—most of them have an online service that can give you a quote in minutes.

Keep in mind that some insurers request a one-off payment while others let you pay in 12 monthly instalments, so consider which option is more suitable for your budget. 

Where Can You Buy GAP Insurance on a Lease Car? 

Dealerships are the most popular and most convenient places where one can purchase lease car GAP insurance in the UK. However, according to online reviews, car dealerships can charge you over £300 more than independent insurers.

In fact, dealerships have been known to offer unfair pricing which is why the FCA does not allow car dealerships to sell GAP insurance for at least two days after the vehicle is purchased, giving you time to shop around.

Bear in mind that in addition to regular insurance providers, banks, finance and leasing companies as well as insurance brokers offer this insurance product. 

Types of GAP Insurance: What Does GAP Insurance Cover?

Most of the types of GAP insurance work in the same way, they just differ on the protection level. 

GAP insurance is usually broken down into 6 different types:

1. Return to Invoice GAP insurance 

The most popular coverage, this policy bridges the difference between the sum your insurer pays out and the original value of the car or the amount you owe to a car finance company (whichever is higher). 

2. Return to Value GAP insurance 

This policy, typically offered to privately-bought cars, pays out the gap between the total loss payment and the purchase value of the car when you started the policy

3. Vehicle replacement GAP insurance 

Replacement GAP insurance provides the most extensive coverage. This policy bridges the difference between the valuation of the vehicle as estimated by your insurance provider and whichever is highest of the following:

  • The amount outstanding on finance when the claim is made or
  • The invoice price of the vehicle when it was originally purchased or
  • The cost to replace the vehicle with the same specifications as the original car.

The cost of vehicle replacement GAP insurance is £199 for three years. 

4. Finance GAP insurance 

This product is designed for cars bought on finance, such as a loan or lease contract. The policy will cover part of the debt you owe on the vehicle and is typically offered as a package deal with RTI GAP insurance.

5. Negative equity GAP insurance

This is similar to Finance GAP insurance but is created for situations when the car loan amount is higher than the cost of the car. 

6. Lease GAP insurance

As mentioned above, lease car GAP insurance pays out the difference between what the insurer gives you and the outstanding balance on your lease or any extra fees that might apply if you end the lease contract early. This product is only designed for HR, PCP, lease or contract and hire vehicles. 

For more information on the difference between Personal Contract Purchase and Hire Purchase, read through this insightful article. 

Bottom Line: Is GAP Insurance Worth it in the UK?

If you have a long-term lease, GAP insurance is a good idea as the payout your insurer provides might not be enough to cover the remaining amount on your lease agreement. There are other benefits with lease car GAP insurance. You could get back some or all of your Initial Rental cover as well as get paid for motor insurance excess up to £250. 

If you do decide to buy GAP insurance, make sure you get quotes from several providers in order to find the best deal.

                           

Frequently Asked Questions And Their Answers

How do I make a GAP insurance claim? 

GAP insurance claims work a little differently than regular car insurance claims. To get paid, the insurance company first needs to declare your vehicle a total loss, after which you contact your GAP insurance provider and make a claim (there is usually a time limit for this so check your policy). GAP insurance is not paid automatically, which means you must make a claim.

If you are unhappy with the way your insurance claim is handled, you can make an official complaint with the company or contact the Financial Ombudsman Service (FOS).

Can I cancel my GAP insurance?

Yes, you can cancel your GAP insurance and get a refund within a month, but only if you have not made a claim. Still, not all insurance providers offer refunds. Look into the company’s refund policy before making a final decision. Also bear in mind that cancelled insurance will stay on your record and affect your chances of getting better premiums. 

How does GAP insurance work in the UK if you have an electric vehicle?

If you are leasing the vehicle or have taken out finance to buy the car, such as a personal loan, GAP insurance is a good idea, no matter what kind of car you drive. There are 705,000 registered EV vehicles in the UK today, any of which could be stolen or damaged, so it’s best if you are covered for the worst-case scenario. 

How long does GAP insurance last? 

Most GAP insurance policies last for three years, which is the lease term of a typical Personal Contract Hire agreement. However, you can specify your insurance policy to last from one to five years. 

Do I need GAP insurance on a lease car in the UK?

No, but it is a good idea to be covered by one, nonetheless. You do need to have at least third-party insurance to legally operate a vehicle on UK roads.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.