GAP Insurance for Lease Cars: Contract Hire Cover Explained

With a car you have bought outright or on hire purchase, GAP insurance usually tops your insurer's market-value payout back up to the original invoice price. On a Personal Contract Hire (PCH) or Business Contract Hire (BCH) lease, there is no invoice price that applies to you, because you never own the car. The leasing company owns it; you are simply paying rentals for the right to use it.

That changes what the "gap" actually is. When a leased car is stolen or written off, your comprehensive motor insurer values the car at the moment of loss and pays that market value to the leasing company. The leasing company then issues a termination settlement figure for the agreement. If the insurance payout is lower than that figure — which is common, given that Direct Gap notes new cars "typically lose around 40% of their value in the first three years" — you are contractually liable for the difference.

Contract hire GAP insurance exists to pay that difference. As Direct Gap's lease and contract hire product wording puts it, the policy "pays the difference between your motor insurer's settlement and your outstanding finance balance". You cannot use a standard return-to-invoice policy for this, because return-to-invoice cover is built around a purchase price you never paid.

The core promise across specialist lease GAP policies is consistent. ALA's Contract Hire Plus wording states the policy "will pay up to 100% of outstanding rentals and any shortfall" between the market value settlement paid by your comprehensive insurer and what the leasing company is owed. MotorEasy's lease GAP page similarly lists cover for outstanding lease payments, early settlement amounts and the shortfall between the insurance payout and the vehicle's value at write-off.

Beyond the headline cover, the published wordings include several extras worth comparing:

Just as important is what falls outside the cover. ALA's contract hire wording is explicit that the policy "would not cover any costs relating to administration charges, maintenance charges, relief vehicle, early settlement charges and road fund license" — even though your leasing company may still bill you for some of these when the agreement terminates.

Two exclusions catch people out most often. First, maintenance packages: if you pay a combined monthly rental that includes a maintenance contract, the maintenance element of any settlement is not covered — ALA notes that initial rental cover applies to the rental "for the vehicle itself" and "will not cover any amount paid towards the maintenance contract". Second, condition-related charges: if the car had unrepaired damage beyond the BVRLA's fair wear and tear standard before the total loss, resulting deductions or penalty charges sit with you, not the GAP insurer.

Standard GAP exclusions also apply. You must hold fully comprehensive motor insurance for the policy to respond, and vehicle types such as taxis, courier vehicles, commercial vehicles over 3,500kg, motorcycles and left-hand-drive vehicles are excluded under ALA's eligibility rules.

Direct Gap publishes a real illustration of the problem on its lease guide: a car valued by the insurer at £14,000 at the point of write-off, against a leasing company settlement demand of £18,500, leaves the driver £4,500 out of pocket without GAP cover.

To show how the pieces fit together, here is a fuller illustrative example (the figures below are our own, for illustration only, not quotes or real claims):

A total loss ends a lease early, and leasing agreements deal with early endings through termination charges. If you end a lease early by choice, What Car?'s leasing guidance notes the charge is commonly around 50% of the outstanding rental payments, though the exact formula varies by agreement. When the car is written off rather than handed back, the leasing company instead calculates a settlement figure, and — as What Car? puts it — if the insurer's settlement "doesn't meet the expectations of the finance company, it's down to you to pay the difference".

This is precisely the gap that contract hire GAP is designed to fill, and the better wordings address it directly: MotorEasy's lease GAP lists "early settlement amounts" and "settlement charges" among what it covers. But note the contrast with ALA's wording, which excludes "early settlement charges" as a distinct line item while covering up to 100% of outstanding rentals. The two policies slice the settlement differently, which is why reading the specific wording — not just the product name — matters when you compare.

One thing no GAP policy does is rescue a voluntary early exit. If you simply want out of the lease, GAP will not pay; the cover only responds when your comprehensive insurer has declared the vehicle a total loss.

Usually not — but sometimes yes, so check before buying. Most PCH and BCH agreements leave the total-loss shortfall entirely with the customer. However, Direct Gap's guidance acknowledges that some leasing companies "may even bundle it into their agreements" and recommends checking "the fine print before assuming you're covered". A minority of lease deals, particularly some manufacturer salary-sacrifice and all-inclusive subscriptions, include total-loss protection or a "return clause" that waives the shortfall.

Where a leasing broker or funder offers to sell you GAP alongside the lease, compare its price and wording against standalone specialists before signing. The same considerations that pushed dealers out of GAP sales — commission-heavy pricing on point-of-sale policies — can apply to lease-desk GAP too. Standalone lease GAP from specialist providers is typically priced independently of the lease, and you are free to buy from any FCA-authorised provider; nothing obliges you to buy through the leasing company.

Timing rules apply either way. ALA's contract hire eligibility requires the vehicle to have been collected within the last 365 days, and the agreement must have no purchase option at the end — the defining feature of contract hire. If your agreement is a PCP with a balloon payment rather than a true lease, you need finance or return-to-invoice GAP instead.

Contract hire GAP is sold for both Personal Contract Hire and Business Contract Hire, and the mechanics of a claim are identical: insurer pays market value to the funder, GAP covers the shortfall on the settlement. The practical differences sit around the edges.

For business leases, eligibility restrictions in the policy wordings do more work. ALA's exclusions rule out taxis, courier vehicles and commercial vehicles over 3,500kg, so cars used for hire and reward or heavy commercial use will not qualify even on a business agreement — a company car driven for ordinary business mileage is fine. VAT treatment also differs: VAT-registered businesses typically recover some or all of the VAT on rentals, which affects the net cost of the shortfall you are insuring, so check with the provider whether their settlement is calculated on figures including or excluding VAT.

For personal leases, the main point is consumer protection. A PCH customer buying GAP as a consumer benefits from the FCA's ICOBS rules, including the 14-day cooling-off period on general insurance policies, and can complain to the Financial Ombudsman Service if a claim goes wrong. Business purchasers may fall outside some of these protections depending on the size of the business.

Lease GAP is one of the cheaper GAP variants because the insurer is covering a settlement shortfall rather than a full return to invoice. As of July 2026, MotorEasy advertises lease GAP "from as little as £4.12 a month based on a 24-month plan", with monthly and annual payment options, for leased vehicles up to 8 years old, under 100,000 miles and valued up to £125,000. ALA and Direct Gap price policies individually via online quote rather than publishing from-prices for lease cover.

The table below summarises the headline published features of three specialist lease GAP products, taken from each provider's own policy pages as of July 2026. Always confirm details against the current policy wording before buying — features vary by underwriter and can change.

Get quotes from at least three specialist providers using your lease details: the vehicle, the term, the initial rental and the monthly rental. Make sure you select the contract hire or lease GAP product, not return-to-invoice — the products are not interchangeable, and a mis-sold RTI policy on a lease car may leave you unable to claim meaningfully because you have no invoice price.

Before buying, confirm three things against the policy wording: that up to 100% of outstanding rentals is covered, whether early settlement charges are inside or outside the cover, and whether your initial rental is protected and up to what cap. Then check the eligibility clock — buy within the provider's purchase window from vehicle collection, keep fully comprehensive insurance in force for the whole lease, and hold on to your lease agreement and initial rental invoice, as the insurer will ask for both at claim time.