Early Termination Insurance, also known as ETI, is a cover designed for employers to detach them from long-term commitment on a lease for a salary sacrifice car lease. As an employee’s circumstances change expectedly and unexpectedly. Enabling the employers to give the vehicle back.

Early Termination Insurance Explained for Electric Vehicle Salary Sacrifice

There is no doubt that salary sacrifice offerings that enable employees to access a fully insured and maintained electric vehicle at a ‘cut priced’ cost, it’s a huge benefit. Not only for the employee but also the employer that received NIC (National Insurance Contributions) savings plus an excellent employee retention benefit.

Employers need to be mindful that in the event that an employee does leave the company or circumstances change which results in the employee being able to continue paying, without Early Termination Insurance, the employer would be left with continuing to pay for the lease vehicle or returning the vehicle and paying any applicable early termination charges. Please note, this is not an option for maternity or paternity leave – you’re not allowed to take the vehicle from the employee.

What happens to the Electric Vehicle when an employee leaves?

If an employee leaves the company, then the vehicle can be returned, however typically the cost for doing this amounts to 50% of the remaining lease costs. This is where Early Termination Insurance will benefit your salary sacrifice offering.

What happens to the Electric Vehicle lease if an employee wants to leave?

Not as easy as it sounds, the lease agreement is with the employer not the employee. Switching from a business lease (unregulated) to a personal lease (regulated) is extremely difficult and in most cases impossible.

Can the new employer take over the lease?

It is an option but again difficult, there is no guarantee that the new employer will want to do this, especially if they don’t have a current salary sacrifice scheme. The new employer would need to go through an underwriting process and may not meet the criteria of the lender. Even if they do, then at very least they’ll need to pay an administration charge and also a minimum amount of lease remaining, typically 12 months. As there are no guarantees surrounding this, it’s an option that’s completely out of your control.

What is the best option for terminating a Salary Sacrifice Lease early?

There are multiple options available to an employee to consider in this eventuality:

• Do nothing, I’m happy to take the risk – this naturally offers zero protection, however if you’ve got a small and long-standing workforce then employers may consider that they’re happy to absorb this risk due to the unlikelihood of occurrence.
• Change employee contracts –employers can look to amend contracts to look to pass on responsibility/costs but would need the agreement of all parties and be difficult to enforce (impossible in some cases) plus it could put employees off the scheme.
• Keep the NIC savings –as mentioned, employers will benefit from NIC savings on this scheme and rather than pass these onto the employees they can retain these to put into a ‘pot’ and use these to assist in any potential loss – again, a bit of a gamble but it does offer some form of protection.
• Take out protection from the lease company –lease companies such as Lex offer early termination protection for a set charge per month, however this can restrict your options as most lease companies don’t offer this and could result in people paying higher lease costs.
• Take out Early Termination Insurance – Early Termination Insurance is specifically designed to offer employers protection should the vehicle be returned early in exchange for payment of a monthly premium. It’s something that we offer here at Spencer Hayes Salary Sacrifice.

So, what does Early Termination Insurance cover for Salary Sacrifice?

This does differ from insurance provider to insurance provider but principally these areas can be covered with Early Termination Insurance:

• Accidental Death
• Loss of Licence
• Resignation
• Instalment Protection Benefit (Maternity/Paternity/Adoption)
• Dismissal Gross Misconduct
• Redundancy

I thought you couldn’t return the vehicle upon Maternity, Paternity or Adoption leave?

That’s correct, but the cover is noted as Instalment Protection Benefit which means that it provides payment for up to a 12-month period to cover the cost of the lease (including maintenance). Normally the leave period needs to be more than 30 days.

Is there an excess of the policy?

It’s not the norm, however they’re exclusion periods where the lease needs to be in place for a minimum period before a claim can be made. Typically, 3 months but 9 months for maternity/paternity/adoption.

Interested in hearing more about how Early Termination Insurance can benefit your salary sacrifice offering?

We’re more than happy to answer any further questions and talk over all the options in how we can help with Early Termination Insurance.

Connect with me (Marc Kirker) on LinkedIn, or simply get in touch with the team today for more information.