While it’s true that you don’t own the car you lease, you’ll still need to look after it as if you do.
One of the most important things you’ll need to sort out for your lease car is your insurance each year. As a general rule, insurance isn’t included in a lease package, so it’s something you’ll not only need to remember to do but also a cost factor to consider on top of your monthly lease payments.
And then there’s GAP insurance – additional cover that bridges the gap between your vehicle’s current value and the amount you have left to pay on your finance deal. Often maligned, it’s actually very much worthwhile for lease agreements, particularly when you’re leasing new.
We’ll get to grips with the necessities, optional extras and dos and don’ts of car leasing and insurance in this guide. If you’d like to know more about car leasing first, have a look at our guide to how car leasing works.
Car insurance requirements for leased cars
In almost all cases, your leasing company will require you to take out a fully comprehensive insurance policy. That’s because they own the car and require full protection of their asset, as well as cover for any damage to any other vehicles or third parties.
The insurance policy will need to be taken out in the name of the person who holds the leasing agreement (in the case of a business lease, the insurance should be under the name of the company or the director of the company that holds the lease).
Otherwise, a lease insurance policy works like any other. For example, you’ll be able to add named drivers.
Does car leasing include insurance?
Standard leasing agreements
Standard leasing agreements don’t come with insurance. You’ll need to manage and renew your lease car’s insurance policy for the duration of the contract.
Additional insurance options
There are lease packages out there that do include insurance, usually coined ‘all in one’ or ‘combined’ leases or similar, depending on the company providing them. These deals will incorporate the cost of your insurance (often along with maintenance, servicing and other core extras) into your monthly lease cost. This sounds convenient – and certainly can be – but make sure the total cost is reasonable. You may find that keeping your insurance and lease package separate offers better value.
If your place of work offers a salary sacrifice scheme, that usually incorporates all your costs, including insurance, in a single monthly payment. However, this is a specific type of lease agreement you’ll need to access through your employer.
Is it more expensive to insure a leased car in the UK?
No, insuring a lease car shouldn’t come in any more expensive than covering any other vehicle you might own or finance.
Because fully comprehensive insurance is compulsory for a lease, there are some instances where you might find a third-party-only policy is a little cheaper. However, given third-party cover is often more expensive than comprehensive these days – not to mention a much more restrictive policy – there’s very rarely value to be found in looking down that route.
Types of insurance for leased cars
Comprehensive insurance
As the name suggests, comprehensive insurance offers full protection in the event of an accident.
You’ll almost certainly have to take out a fully comprehensive policy when you lease a car. It will cover:
- Damage to your vehicle.
- Damage to any other vehicle.
- Injuries to yourself or third parties.
Most fully comp packages include things like breakdown cover, windscreen repair and a courtesy car, too, but add-ons like these will differ between providers and policies.
Third-party insurance
In simple terms, third-party insurance only covers the other side, aka the third party. If you cause an accident, the other party’s damage and injuries will be covered by your insurance, but you’ll be left with the bill for any damage to your vehicle or /personal injury. Third-party, fire and theft is probably the most common form of non-comprehensive cover, which also offers protection if your vehicle is stolen or damaged by fire.
Bizarrely, third-party insurance is often more expensive than fully comprehensive coverage these days. This is largely because of the risk profile of the drivers associated with a more limited form of cover, so. So you could, in theory, end up paying more for a substantially less in protection terms.
That generally makes third-party cover a dreadful idea, but there could be some instances where it works out cheaper – if you’re happy with the increased risk that comes with it.
Understanding GAP insurance
What is GAP insurance?
Guaranteed asset protection (GAP) insurance couldn’t have a more suitable acronym. It’s an optional form of coverage that protects you against the ‘gap’ in value between your vehicle’s current value and the remaining balance on your car finance.
If your vehicle is written off in an accident or stolen, your insurer will pay out based on their valuation of the vehicle in the current market. If you’re on a finance deal, this value may be less than the balance you have left to pay, leaving you with a bill for a car you can no longer use. GAP insurance protects you against this disparity, covering the difference so that you don’t have any excess to pay.
Why GAP insurance is important for leased cars
Because lease packages usually consist of a low initial payment followed by years of fixed monthly payments, there’s a reasonable likelihood that you might owe more than the car’s market value during the lease term. If a write-off or theft occurs and your insurer pays out less than what you owe, GAP insurance protects you.
How to obtain GAP insurance
Acquiring GAP insurance works just like finding normal insurance. There are plenty of providers out there for you to compare quotes and find the deal that works for you.
Some all-inclusive lease packages might include the option to add GAP insurance as part of your deal, but you’ll have to go out and find it yourself for most standard leases.
Business lease car insurance
If you’re taking on a business lease, there are a number of additional insurance considerations to keep in mind:
- The policy will need to be taken out under the same name as the lease, which, in the case of a business lease, will be the business itself or the director of the business.
- If you’re using the vehicle for commercial purposes, you’ll need a commercial policy to reflect the specialised nature of the vehicle’s use.
- Make sure you have the relevant coverage for all potential drivers. You may need to name all drivers individually or take on an ‘all driver’ option that covers any would-be operator of the vehicle.
- GAP insurance is even more important for businesses managing a fleet of multiple lease vehicles where an accident leading to write-off or theft is more likely.
If you’d like to know more about business leasing, take a look at our guide to how it all works.
Common questions about insurance for leased cars
Do lease cars come with insurance?
Generally, they don’t. Some ‘all-inclusive’ leases – for example, a salary sacrifice through your employer – may offer insurance as part of the total cost package, but virtually all standard lease packages leave it to you to sort cover out yourself.
Do I need GAP insurance on a lease?
GAP insurance is optional but highly recommended for a lease. This is because there’s a reasonable likelihood that at any given time during the lease, you might owe more on your finance deal than the current market value of the vehicle.
This isn’t an issue unless the car is stolen or written off, in which case your insurer will pay out based on the vehicle’s current value rather than your remaining finance balance, which will then leave you to pay the difference to settle the lease.
GAP insurance protects this ‘gap’ in actual value versus how much you have left to pay, making it a worthwhile safety net in case of an incident.
Do you pay insurance on a leased car?
Yes, all insurance payments will sit at your door unless your lease includes insurance as part of the package. You’ll be responsible for the timely renewal of your policy each year, and it’s an additional cost factor you’ll need to consider on top of your lease costs.
How to choose the right insurance for your leased car
Here’s a quick checklist of the essentials for insuring your lease car:
- Make sure you’re aware of your leasing provider’s minimum coverage requirements. You’re almost always going to need comprehensive cover – and make sure there are no exclusions on your policy that conflict with your lease agreement.
- Strongly consider adding GAP insurance to your policy to protect yourself financially in the case of a write-off or theft.
- Choose a suitable excess amount that finds the best balance of affordability between the best-priced policy and your ability to pay it, should you need to.
- Consider personal vs business use. If you’re getting a business lease, you’ll need specialised cover.
- Be aware of your mileage restrictions on your lease agreement when securing a suitable policy. Exceeding your agreed mileage in either contract can lead to additional charges.
- Compare prices to get the best deal. Car insurance on a lease shouldn’t be any more expensive than insuring your own vehicle, but it’s always worth shopping around.
How can I get cheaper insurance for a leased car?
You can use the same tips and tricks you normally would to try and secure cheaper insurance on a leased car. Here’s a reminder of a few favourites:
- Choose the right car: insurance groups for cars vary widely depending on the vehicle. Getting a cheap insurance deal starts with picking a car that suits your needs without commanding an expensive policy.
- Add an additional driver: if you’re a young driver facing a hefty premium, adding an experienced head to the named drivers’ list – for example, an older family member – can save you a chunk of money.
- Compare prices: it’s easier than ever to compare prices online, so don’t go for the first deal you see. Head to a comparison website, enter your details and see what’s out there.
- Add a black box: adding a telematics device (better known as a ‘black box’) that monitors your driving behaviours certainly isn’t a preferred option for everyone. But if you back yourself to drive to a standard your insurer deems safe, you’ll often save a few hundred pounds, especially if you haven’t got much experience or the best driving record.
Find the right lease vehicle with Hippo
Getting the right cover starts with finding the right car. That’s where we come in.
We can find you just about any lease you can think of. Take a look at our full leasing range today – and don’t forget to try out our special offers for size, too.
If you’d rather speak to a member of our team and talk through some options, why not give us a call?