What is Lease GAP Insurance?
Lease GAP Insurance is specifically designed for leased/contract hire vehicles, cars that are not owned. It covers the gap between your insurer payout (market value) and what the lease provider charges to settle the contract if the car is written off or stolen. While optional, Lease GAP Insurance can protect you from large, unexpected bills that appear at the worst times.
What Is Lease GAP Insurance and How Does It Work?
Lease GAP Insurance, also referred to as Contract Hire GAP, is designed for drivers with leased or contract he vehicles. It protects you if your car is written off due to theft, accidental, fire or water damage. It covers the difference between the payout from your insurer in the event of a write off and the value of your vehicle at the time of the incident as well as for settling your outstanding leasing contract and paying off any additional fees.
How it works:
- Your leased car is written off or stolen
- Your motor insurer pays the cars current market value
- The lease provider issues a settlement or termination charge
- Lease GAP Insurance covers the eligible shortfall, helping prevent a large, unexpected bill.
Who Lease GAP Insurance Is For (Contract Hire / Leasing Only)
Lease GAP Insurance is specifically designed for drivers who lease a vehicle they do not own. This includes:
- Personal Contract Hire (PCH)
- Business Contract Hire (BCH)
- Any contract hire lease where ownership of the vehicle remains with the leasing company on leased vehicles up to 8 years old and with less than 100,00 miles.
It is important to note that if you have a PCP or Hire Purchase (HP) agreement, Lease GAP Insurance will not be suitable for you - you will need a different type of GAP insurance.
What Happens if a Lease Car Is Written Off or Stolen?
If a lease car is badly damaged, stolen and can’t be recovered, your insurer may declare it as a total loss – meaning the vehicle is either uneconomical to repair or cannot be returned. Resulting in a full Motor Insurance Settlement (means the amount of money that you receive from your Motor Insurer following a claim).
Your motor insurer will then pay out the car’s current market value. However, because you don’t own the vehicle, the lease company will still require an early termination settlement to close the contract.
Shortfalls can occur because:
- Cars depreciate much faster than expected - depreciation is the natural decline in your car’s value over time.
- Lease settlement terms don’t match market value
- Early termination and contract charges apply
Why Lease Cars Create a “GAP” (Market Value vs Lease Settlement)
A GAP exists on lease cars because standard car insurance usually only pays the vehicle’s current market value at the time it’s written off or stolen. That value can drop quickly due to depreciation.
Lease providers, however, calculate costs using a lease settlement (early termination) figure, which can be higher than market value. This may include remaining rentals, contract terms, and additional fees.
That difference is why lease GAP insurance (also called gap insurance on a lease or gap insurance lease car) exists - to help cover the shortfall between what your insurer pays and what the lease company charges.
The Difference Between Market Value and Lease Settlement
Market Value
Market value is what the vehicle is worth today on the open market. In simple terms, it’s the price you’d expect to get if you sold the car just before the loss, considering its age, mileage, condition, and current demand.
Lease Settlement
What the lease provider charges to end the contract early, after a total loss. This figure is set by the lease company and is based on the remaining balance of the lease contract, plus any applicable fees.
Key differences to understand:
- Lease settlement is not the same as purchase price and not always aligned with market value.
- In many cases, the lease settlement can be higher or lower than the car’s market value, because it reflects the finance agreement, not what the car could be sold for.
- Market Value is about what the car is worth today, while lease settlement is about what it costs to close the lease and contract early – and the two don’t always match.
Why Depreciation Makes the GAP Bigger
The main reason for the gap between market value and lease settlement is depreciation - the loss of a cars value over time.
Cars lose value quickly, especially in the first few years - as soon as a vehicle is driven, its market value starts to fall.
Insurance market value reflects this depreciation straight away. It’s based on what the car is worth at the time of the loss, considering age, mileage, condition, and current market demand.
Lease settlement, however, doesn’t always reduce at the same pace. It’s calculated from the lease agreement and remaining payments, which may not keep up with how fast the vehicle’s market value is falling.
As a result, during periods of rapid depreciation, the lease settlement can be higher than the car’s market value - making the gap between the two bigger.
Lease Settlement Fees and Early Termination Charges
A lease settlement isn’t just the remaining monthly payments.
Ending a lease early can trigger fees or charges, depending on the agreement, such as administration or early termination costs. These are added on top of the contract balance.
Because of this, the settlement figure can be higher than expected, which is why drivers may face a larger bill even though the car itself has lost value.
What Does Lease GAP Insurance Cover on Lease?
Lease GAP Insurance is designed to cover the shortfall between the insurer payout and the lease settlement figure, if the vehicle is written off or stolen. This differs in terms of provider and policy. With MotorEasy Lease GAP Insurance, you will benefit with up to £500 insurance excess cover, as well as up to £3000 towards your initial rental.
What Lease GAP Typically Covers
Lease GAP insurance typically helps with costs that may arise if your leased vehicle is written off or stolen, such as:
- The difference between the insurer payout and the lease settlement figure
- Eligible early termination charges, where these are included in the policy
- A potential contribution towards your insurance excess, where included
What Lease GAP Insurance Usually Doesn’t Cover
- Mechanical breakdown or wear and tear
- Non-total-loss repairs (where the vehicle isn’t written off or stolen)
- Unpaid rentals or charges not linked to a total loss claim
- Claims that aren’t accepted by your main motor insurer
Lease GAP Insurance works alongside your motor insurance, so it typically only applies when a valid total loss claim has been approved.
When Lease GAP Insurance Can Be Worth It
- Lease GAP Insurance can be worth considering in situations where the risk of a settlement shortfall is higher, such as:
- New or nearly new vehicles, which tend to depreciate fastest
- Long lease terms, where the gap between value and settlement can be larger
- A high initial rental or deposit, increasing your overall financial exposure
- Models that depreciate more quickly than average
- When covering a large settlement shortfall at short notice would be difficult
Frequently Asked Questions About Lease GAP Insurance
What is Lease GAP Insurance?
A type of GAP Insurance designed for drivers with vehicles on a lease agreement. It is built to cover the gap between your insurer payout (market value) and what the lease provider charges to settle the contract if the car is written off or stolen.
What does GAP insurance cover on a leased car?
- New or used cars purchased on a lease or contract hire agreement
- Vehicles valued up to £125,000
- Cover available for all cars up to 8 years old and 100,000 miles
- Write-offs due to theft, accidental damage, fire damage and water damage
- This GAP Insurance policy pays the difference between the vehicle insurance settlement and the early settlement amount
- Up to £500 of your vehicle insurance policy excess
- Covers European Road trips
Do you need GAP insurance on a lease in the UK?
Although it is optional, yes, GAP Insurance is particularly important on lease vehicles due to quick car depreciation. With lease vehicles, if your car is written off, you can be left with large fees, especially if you can’t complete your lease agreement.
Is Lease GAP the same as Contract Hire GAP?
Contract Hire GAP is just another name for Lease GAP Insurance
How much is Lease GAP insurance?
This will depend on the make and model of your vehicle, and your release /contract agreement. For the most competitive price, get a quote from us at MotorEasy today.
Can I buy Lease GAP insurance after starting my lease?
Yes. Once you have taken a lease agreement, you can get a quote for a Lease GAP Insurance policy. You can take out a Lease GAP Insurance policy on all leased vehicles up to 8 years old and with less than 100,00 miles.
Is GAP insurance included in a lease car agreement?
In most cases, standard lease agreements do not include GAP insurance. If your leased car is written off or stolen, your insurer will usually only pay the current market value of the vehicle - which can be less than what you still owe under the lease.
