Lease car insurance – is cover always included?

The way people are buying cars in the UK is changing: personal contract leasing is becoming increasingly popular.

An attractive alternative to buying a new car is to lease one instead - paying a set monthly fee to drive a vehicle over a period, typically two or three years.

Such agreements allow drivers to change their car every few years. This can often make new cars more affordable for drivers who otherwise wouldn’t have the funds to buy one outright, or prefer not to seek a larger amount of finance.

Read on to learn how car insurance works when you lease a car in this know how guide.

Car leasing insurance

The car you lease might not actually be your car - you don’t own a car under personal contract leasing or personal contract purchase (PCP) but you still need to be insured to drive it. Never forget that it’s illegal to drive a vehicle without suitable insurance in place.

Unless it is specifically stated on the terms of the PCP, insurance won’t be included in the price of the lease. Therefore, it’s your responsibility, as the driver of the vehicle, to arrange car insurance.

The principles don’t really change at all. You’re still insuring yourself, as a driver, of a specific vehicle. That vehicle will belong to one of the 50 car insurance groups - remember, those in group 1 are the cheapest, rising right up to the most expensive in group 50. 

If you’re browsing a range of cars to lease, it’s actually worth bearing this in mind. Cars in a lower group will be cheaper to insure than models that are more powerful, are larger in size, and higher in value. This could be a factor in the decision you make about the car.

• The top 10 cheapest cars to insure right now and why
• 30 money-saving motoring tips
• Why has car finance become so popular?

When leasing a car you may be required by the leasing company to have a certain level of cover, for example Comprehensive Car insurance. If you’re insuring a car you own you can choose any level of cover that best suits your needs. 

When considering third party car insurance you may need to remember that the policy doesn’t cover the car you drive in the event of an accident. However, it does cover damage to other people and their property. So, an example scenario could be that you are involved in an accident and your insurance policy doesn’t cover the cost of any damage to the car you’re leasing. If this happens, you’ll have to pay the full cost of repairs yourself.

If you return the car at the end of the lease period with signs of damage, the leasing company can ask for you to cover the cost of a repair.

For these reasons, it’s highly likely that the company you’re leasing the car from will expect you to have fully comprehensive car insurance. They need to make sure their asset is protected - it’s their vehicle, after all.

Gap insurance

Depending on the company, they might also offer something called gap insurance.

There are different variations of gap insurance available but perhaps the most common upholds the price of the car when it was bought or leased as new. It’s well known that new cars depreciate in value steadily over the first few years. 

How does gap insurance work?

You might buy - or lease - a car with a new price of £20,000 but have an accident two years later. The price at the time of the accident might have reduced to £17,000, for example. That leaves you with a shortfall if the car has suffered extensive damage or even been written off as a result of the accident. 

This can be a real problem, financially, if the car needs to be replaced and you’re still paying for it.

Gap insurance means that, even two or three years down the line, you’ll be covered for the price of the car you paid as new.

Depending on your circumstances and the likely deprecation of your car, it may be worth considering gap insurance.