Insurance for a Contract Hire Vehicle
What it is in plain English
You must maintain fully comprehensive insurance on any contract hire vehicle throughout the entire duration of your agreement. Because you do not own the van during the lease period, the leasing company requires this high level of cover to protect their asset against theft, accidental damage, or total loss. Third-party only policies are strictly prohibited under these contracts.
How it works step by step
The process begins as soon as you take delivery of your new van. You are responsible for arranging a comprehensive policy that starts on the date the vehicle is handed over to you. You will need to provide the leasing company with proof of cover before they release the vehicle. Throughout the term, you must keep the insurance active without any gaps, and notify your provider immediately if the van is involved in an incident.
What you pay and what is included
Your monthly contract hire payments cover the depreciation and use of the van, but they do not include insurance premiums. You are responsible for paying these premiums separately to your chosen insurer. A compliant policy must cover the full market value of the vehicle and include professional use if you are using the van for your business operations, rather than just personal domestic travel.
Who it suits and who it does not
Contract hire insurance requirements suit business owners who prefer a clear separation between vehicle financing and operational overheads. It is ideal for those who want to choose their own provider to find competitive quotes based on their specific claims history. However, it may not suit those who prefer a single monthly payment that bundles every cost together, as you must manage the insurance policy administration yourself.
Questions to ask before you sign
Before committing to a contract hire agreement, you should ask your insurance provider if they cover leased vehicles specifically, as some insurers have restrictions. Verify if your policy includes a 'gap' provision or if you need separate protection to cover the shortfall between your insurance payout and the total amount owed to the finance company in the event of a write-off. Additionally, confirm that your chosen level of cover meets all the contractual requirements stipulated in your lease agreement.
FAQs
What insurance do you need on a contract hire vehicle? You are required to hold a fully comprehensive insurance policy for the duration of your contract hire agreement. Third-party or third-party fire and theft policies are not sufficient as they do not cover the damage to the vehicle itself.
Does the lease company arrange the insurance for me? No, in standard contract hire agreements, you are responsible for sourcing and paying for your own fully comprehensive insurance policy.
What happens if my van is written off? If your van is written off, your insurance provider will pay the current market value of the vehicle. If this payout is less than the amount outstanding on your contract, you are responsible for paying the difference, which is why many drivers opt for GAP insurance.
Can I use business insurance for a contract hire van? Yes, you must ensure your policy covers the specific way you use the van, including any commercial business use required for your daily operations.
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