Contract Hire and Finance Lease
the risks it covers
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In the event of a write off, your motor insurer will usually have a responsibility to pay the vehicles market value to the owners - the leasing company.
Your insurers settlement may be less than your leasing company's value - and in most contracts, you are liable for that loss.
Unlike other forms of purchase or finance, motor insurers do not normally offer a 'new for old' settlement in the first year and therefore a gap loss can be a risk from day one of your lease.
Always check the above with your leasing company and insurer.
Do check your Contract Hire or Finance Lease agreement to verify this risk.
When entering into a Contract Hire or Finance Lease agreement, you are contracted to pay the advance rentals (deposit) plus a fixed number of monthly payments.
In the event of a write-off, most Contract Hire and some Finance Lease agreements still require you to pay all or some of the remaining monthly payments. So, if you have a write off in month 12 of a 36-month agreement, your leasing company could charge you for the rentals they expected to collect over the full contract period.
paid and lost
At the start of a Contract Hire or Finance Lease arrangement, you are required to pay the leasing company a number of monthly payments in advance. These are known as 'advance rentals' and can range from one rental in advance and typically up to nine and perhaps more.
In a write-off, your motor insurer is only responsible for paying the market value of the vehicle - and not outstanding monthly or the advance rentals you paid.
If you are unfortunate enough to experience a write-off, you would lose the deposit you originally paid and would need to find funds for advance rentals for the replacement vehicle.
In some circumstances, your motor insurer might declare your vehicle a write off and agree to pay its market value at that time.
So far so good you might be thinking - until they break the news you are required to pay an insurance excess! An insurance excess is a sum of money you pay toward the claim cost and is often deducted from what the insurer agrees to pay.
When you purchased your motor insurance, you would have chosen a compulsory excess and you may have also chosen a voluntary excess to help reduce your insurance costs.
The excess is a cost you may bear in a write-off.
The Association of British Insurer's statistics suggests over 500,000 vehicles are written off every year. That equates to 57 vehicles per hour, every hour 24 hours a day - 7 days a week.
Professional theft is often a high tech operation. The perpetrators have the technology and methods to overcome almost all types and levels of security - including the most basic technique of stealing the keys first!
In the large majority of write-offs, the unfortunate motorist will either lose or owe money and the amount can be substantial. Gap Insurance is an optional low-cost cover to protect these risks.