Traditionally buying a new business or personal vehicle is expensive. Contract hire and lease packages had made affording a new vehicle easier than ever. The no-nonsense simplicity of the package as well as the sheer flexibility means that it is quickly becoming one of the nations favorite ways of funding a vehicle purchase.
This attraction is now not only limited to the business world, instead growing numbers of the public all keen to take advantage of the low commitment and low initial outlay that the package offers.
So is contract hire gap insurance honestly worth buying? Will it actually work and do you really need it?
The Financial Conduct Authority are keen to promote a transparent finance and insurance market. A financial market in which the public can have confidence in, safe in the knowledge that financial services will do as they expect during the life time of their policy and offer real benefits.
So will contract hire gap insurance be able to stand the test of time and live up to the expectations of the market?
Many contract hire owners are now blissfully unaware that if their vehicle was written off or declared a total loss that they could be left not only with no vehicle but also with a shortfall to settle.
We also know that some contract hire providers make the concept of the policy almost impossible to understand. So what are the benefits of a policy?
Simply put if you have a vehicle on a contract hire package you are legally responsible for any financial shortfall between your insurance companies settlement on the day of loss and the amount outstanding on your finance agreement.
Please remember that for your contract hire company their primary concern is simply to get their money back. They actually do not mind if you make your monthly payments and then hand them back a physical asset at the end of the agreement. Or perhaps buy yourself out of the contract? For them it will and always has been about protecting their investment. The only time this can change is if your vehicle is written off.
At this time any differences between their expected residual value and the real market value are now your responsibility as well as any outstanding finance.
This means that unless you have a contract hire gap insurance in place you could be left with no car, having to find another deposit rental as well as clearing any outstanding rentals.
So is contract hire gap insurance a gimmick?
Insurance has and always will be about risk and what happens should a specific event happen. For the vast majority of contract hire owners we think that it is a safe and prudent choice. That is to say that you find a policy which can cover you and your circumstances. Also making sure that the price is fair and reasonable. In that case it is in our opinion a complete no- brainer.