Getting Insurance for Leased Cars
Updated on Tuesday 28 July 2020
Car insurance is legally required to drive a vehicle on UK roads, regardless of whether you lease it, finance it, or own it.
A leased car isn’t necessarily ‘yours’ because you don’t technically own it, but that’s not to say that you can dodge the cost of insurance.
Insurance is rarely included within the cost of a car lease, and you are legally responsible for arranging your own cover, despite not being the owner of the vehicle.
Here’s a complete guide to leased car insurance, including how it works, how to cut the cost, and the benefits of GAP cover.
How does lease car insurance work?
Do you need fully comprehensive car insurance?
Who pays the insurance on a leased car?
Car insurance and depreciation
Insurance for leased cars and vans
When you lease a vehicle, the insurance is almost always your responsibility to arrange. It is rarely included within your contract and you’ll probably be required to purchase cover off your own back, as you would if you owned the car.
Purchasing insurance for a leased car, or a car on finance, is therefore identical to the process of insuring a vehicle that you own.
When you lease a car, is insurance included?
There are deals available where you can purchase a car lease with insurance included, but it is a rare occurrence in the UK and the majority of agreements will mean that you have to purchase cover yourself.
Never automatically assume that your car is insured, and if you’re in any sort of doubt, use the free AskMID service to check that you’re covered.
You need fully comprehensive insurance
If you are leasing a car, then it is likely that your contract will require you to cover the vehicle with fully comprehensive insurance. This isn’t necessarily a negative, as, though third-party and third-party, fire and theft (TPFT) insurance were traditionally cheaper, there is now more value in purchasing a comprehensive policy.
This is because car insurance companies found that more high-risk drivers were purchasing lower levels of cover, which led to the cost of fully comprehensive policies being lowered to reward those who were more safety-conscious.
Remember that you need to have your insurance in place for every minute of driving the car, which means you must set up your cover before picking up the vehicle if you want to drive it home.
If your car is being delivered to you, you will be expected to show proof of your insurance before confirming receipt. The leasing company will be able to give you all the details of the vehicle before you receive it so that you have plenty of time to find the best car insurance quote for you and put the cover in place.
Your insurance certificate must show:
- Your name
- The car registration number, model and make
- A start date that is either the date of delivery or earlier
- That it is a fully comprehensive insurance policy
The different types of vehicle leases
The main types of car leases and finance options include:
- Personal Contract Hire (PCH)
- Business Contract Hire (BCH)
- Personal Contract Purchase (PCP)
- Hire Purchase (HP)
The most common way of leasing a car is Personal Contract Hire (or Business Contract Hire), where the finance company remains the registered owner of the vehicle and you are essentially undertaking a type of long-term hiring contract.
Technically, PCP and HP are not lease options but finance deals, as you are the legal owner of the vehicle and will have the car documentation registered in your name.
Who pays insurance when you lease a car?
If the car lease is a personal contract – either a finance arrangement or a personal contract hire – then the person taking out the contract should also be the main policyholder on the insurance.
When the lease is for business use, the insurance certificate should be in the company’s name, or that of one of the directors. Any employees required to drive the vehicle should be listed as named drivers on the insurance policy.
If the insurance policy is to be in the name of the employee who will be driving the vehicle, then the leasing company will want to see a letter on company headed paper which confirms that the named person is authorised to drive the vehicle and clearly indicates their position within the company.
In short, if you’re looking at taking out a personal contract lease, you will be required to cover the cost of the leased car insurance, but be sure to check with the broker or leasing company that you’re dealing with.
Do I need GAP insurance on a leased car?
Guaranteed Asset Protection (or GAP) insurance is an additional insurance policy designed to protect the car leaser from the effect of depreciation should the vehicle ever be determined a ‘total loss’ by the insurance company.
In simple terms, gap insurance covers the difference (or the ‘gap’) between your vehicle’s current worth and the amount you owe the leasing company.
Avoiding the impact of depreciation with insurance
The value of your car drops continuously as you drive it.. In the first year of the car’s life, its value falls by an average of 40% - so it is not unreasonable for a leased car valued at £30,000 at the beginning of the contract to have a market value closer to £18,000 at the end of the first year.
Should you have an accident and write-off the car at that point, your insurance company will reimburse you to that £18,000 level, but you are likely to be contractually obliged to the leasing company for a value much closer to the initial £30,000.
In fact, without GAP insurance, a significant accident or theft of your vehicle in the first year could have devastating financial consequences for you, leaving you thousands of pounds out of pocket.
Find out more in our guide to protecting your car from depreciation.
Covering the difference with GAP cover
The additional protection of GAP insurance is designed to pay you the difference between the fair market value covered by your main insurer, and the actual amount you owe on your lease or finance agreement.
If your vehicle is marked as a total loss by your main insurer, then the GAP insurer will step in and save you from the financial obligation that has occurred due to depreciation.
Finding the best GAP insurance
Many leasing companies offer GAP insurance at the point of sale, adding an initial few hundred pounds on to the initial cost of the lease and giving you a heightened level of security for the time you have the car.
In a competitive marketplace, you may well be able to get a much cheaper quote for your GAP insurance if you shop around, so don’t jump the gun. When you look for the right GAP insurance policy for your circumstances, don’t always just accept the first offer you are given by the leasing company.
Getting cheap car insurance for your leased vehicle
Similarly to standard cover for a vehicle that you own, there are plenty of ways to get cheaper car insurance for your leased vehicle, including the following:
- Shop around and use comparison websites like Confused.com
- Increase your voluntary excess (but only to an amount you can afford)
- Get black box insurance (you will need permission from the leasing company first)
- Don’t over-insure yourself
- Add a named driver (you might also need permission from the leasing company for this)
- Choose a car that’s cheap to insure
- Park the vehicle away from danger
- Tweak your job title
- Lower your annual mileage if possible (this could also get you a cheaper car lease deal)
Lease a car with insurance included
It’s also possible to get a cheap car lease with insurance included from some providers, where the cost of cover is included within your monthly premiums or the initial payment.
If you decide to opt for a car lease with free insurance, always check that you’re getting good value-for-money. Price up the amount you’d pay for separate leasing and insurance contracts, and compare it with the “insurance-included” deal you’re being offered by the leasing company.
Do I need a business or personal car lease?
Business lease deals are usually less expensive per month than personal contracts, mainly because you can claim 50% of VAT back on the monthly premiums of a business lease (and all of the VAT on any maintenance agreements).
Before you try taking out a business car lease deal because of the attractive price-tag, it’s important to note that only the following organisations or people are eligible for business contracts:
- Self-employed people
- Public limited companies
- Limited liability partnerships
- Partnerships
- Local authorities
- Limited companies
- Charities
- Embassies
- VAT registered companies
If you aren’t considered as any of the above, you will be required to take out a personal car lease.
Car insurance for business lease contracts
If you are looking to lease a vehicle for business purposes, don’t forget that you need to take out the right level of specific business car insurance.
It is important to understand that basic personal car insurance (often called social, domestic and pleasure level) does not cover your vehicle for work-related use. While most car insurance policies cover commuting to a single workplace from home, they do not provide protection in a number of other circumstances, including:
- Driving between multiple work sites
- Driving to clients for meetings or work
- Carrying goods or materials
- Using your vehicle as a taxi or courier
While business insurance is a higher band of cover and is more expensive than a social and domestic policy, without it you are not insured, and should you be involved in a car accident while using your vehicle for a work-related purpose,, your policy will be invalid and you could face serious consequences.
Always tell your car insurance company the truth regarding your vehicle use so that they can offer you the correct level of cover, because if you lie or fail to disclose the whole truth, your policy will become invalid.
Finding the best car insurance for leased vehicles
The best way to find a cheap leased car insurance deal that provides you with the right level of cover is by using one of the many online comparison websites available.
Remember to let the insurer know that you’re leasing the vehicle, rather than buying it, and inform them of whether you’ll be using the car for business or personal use.
See our guide to the best car insurance companies for more information and a list of the most reputable providers in the UK.
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