How Finance and Contract Hire Gap insurance could work for you.
Let's take a look at a common and typical (non Contract Hire) scenario....
| Mr Smith buys a vehicle for an agreed inclusive price | £15,000.00 |
| He pays a deposit of | £ 1,000.00 |
| He finances with the dealer's finance company the balance of | £14,000.00 |
| Financing at 5% per annum over 5 years the total interest payable is | £ 3,500.00 |
| On the day he drives away, Mr Smith owes the lender (more than he paid for the vehicle) | £17,500.00 |
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Sadly, after 24 months of happy motoring Mr Smith's car is stolen and written off by his insurer. |
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| To settle his finance agreement (on his stolen car) Mr Smith is required to pay his lender | £ 9,750.00 |
| But Mr Smith's insurer will only pay the vehicles market value which is | £ 7,500.00 |
| Mr Smith therefore needs to pay his lender the difference, just to clear his debt |
£ 2,250.00 |
| If Mr Smith had purchased Premium Finance Gap Insurance, the policy would have paid £2,250.00 to his lender on his behalf. The 'Gap' differences are often substantially higher in agreements with 'balloon' payments or 'option to purchase' payments. *1 |
Contract Hire users have a different risk to the example above. Within a Contract Hire agreement you have two liabilities (risks), the first is to insure for the vehicles market value throughout the agreement. This is achieved by fully comprehensive motor insurance. The second liability is the rentals / payments outstanding and due to the Contract Hire company at the time of write off. Most Contract Hire companies charge will bill you for the rentals outstanding, therefore suffer a write off 24 months into a 36 month agreement and they will charge you the 12 months that remain. Finance and Contract Hire Gap insurance is available to insure you against that second and often overlooked risk.
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*1 Some items such as road tax and fuel will not be covered. Please refer to policy terms and conditions for more detail