How Does Insurance Work when Leasing Your Car?

For some reason, the issue of insurance comes up a lot when we’re talking about leasing. Maybe it’s because leasing is pitched as ‘fixed cost’ motoring and people are surprised to hear that there’s another bill they've got to pay.

Unfortunately, as with all forms of motoring, insurance isn’t something you can just ignore.

In this article, I’ll look at how insurance slots into the leasing industry and what you need to look out for. Let’s get started.

Do I need insurance?

The short answer is yes. Car insurance is a legal requirement in the UK and it applies whether you own your car outright, you lease your car or finance your car on PCP or HP.

Technically, the legal requirement in the UK only requires you to have third-party coverage. In other words, you only have to have insurance that covers damage to other parties. That’s because when you own your car, you can decide whether or not to repair the damage.

However, it’s a different story with leasing because you don’t actually own the car.

If you were involved in an accident driving a leased car and only had third-party insurance, you would have to pay the finance company back for the full value of the car and that could cost you hundreds, thousands or tens of thousands of pounds. (Or if you write off a Rolls-Royce Dawn, it'll cost hundreds of thousands of pounds!)

That’s why most leasing contracts require you to have fully comprehensive insurance. Fully comp insurance tends to be a bit more expensive (although not always) and covers things like fire, theft, vandalism and accidental damage to your own car as well as the third-party. (Note: all insurance policies are different so do not assume that your policy includes any of that. Always check your policy carefully for full details.)

Unfortunately, that’s not the end of the story for insurance while leasing.

You see, if you write off a car, your insurance company will only pay out the market value of the car when you crashed it. Considering cars depreciate fastest in their first three years, there can be a huge difference between a car’s market value and what the finance company paid for it.

Say a leasing company buys a Ford Focus for £20,000. As soon as a customer takes receipt of it, its value suddenly drops to just £12,000. So if the customer crashes on their first day and writes off the car, the insurance company will only pay out £12,000, leaving a big £8,000 hole.

And that brings me onto GAP insurance.

What’s GAP insurance?

Guaranteed Asset Protection (GAP) insurance is an extra insurance policy that pays the difference between the market rate of a car and the valuation from the leasing broker.

Essentially, it guarantees the value of the asset (car) and agrees to pay the difference to bring the insurance pay out back to that value.

How much will insurance cost?

Asking how much insurance costs is like asking how long a piece of string is. Who is driving the car? What car are they driving? Where are they driving it? Why are they driving it? What's their driving history like? The questions go on and on.

That's not really an answer to the question, though. And that's not really good enough.

To give you a decent idea of how much insurance costs, I’m going to take three example motorists — Jenny, Jack and Bob — and get some example car insurance quotes.

First, let’s meet out motorists.

  • Jenny: Jenny is a 28-year-old marketing executive who stays in a flat in the centre of Manchester. Her car is parked in a secure, off-street car park and she only uses it for social purposes. Jenny has had her license for 10 years but has zero no claims because this is her first car.
  • Jack: Jack is a 40-year-old solicitor who lives in Poole but commutes every day to Salisbury. He lives in a detached house in a suburban neighbourhood and parks his car in a garage. He has held his license for 20 years and has 10 years no claims bonus.
  • Bob: Bob is a 55-year-old freelance site architect and leases his car through his work. He lives in Glasgow in a townhouse and parks on the street. He drives a lot for work. He has held his license for 30 years and has 5 years no claim bonus.

So those are our motorists. For their cars, I’m going to get quotes for the three most popular leased cars on the market.

  • Volkswagen Golf: Small, practical, efficient and packed full of quality German engineering. It was popular ten years ago, it’s popular now and it will (probably) still be popular in another ten years.
  • Mercedes-Benz C-Class: Bigger and fancier than the baby A-Class and more affordable than the E-Class, the C-Class is the perfect mix of everything great about Mercedes-Benz.
  • Audi A4: Like the C-Class, the A4 is the perfect ‘compromise’ car. Big, comfortable, practical and affordable without losing too much performance.

Motorists set and cars chosen, it’s time to hit the phones and get some quotes.

And here’s what insurance companies are charging each of those motorists to insure each of those cars.


  • Volkswagen Polo: £749.28
  • Mercedes-Benz C-Class: £966.56
  • Audi A4: £881.8


  • Mercedes-Benz C-Class: £978.88
  • Volkswagen Polo: £1,966.17
  • Audi A4: £2,120.6


  • Mercedes-Benz C-Class: £730.00
  • Volkswagen Polo: £996.80
  • Audi A4: £740.30

As you can see, there is a huge variation in the price.

Now, don’t think that you will get get that same quote just because you’ve got the same car or are the same age as one of our motorists.

(Insurance quotes depend on hundreds or thousands of different variables, ranging from where you live to how long you’ve had your license for.)

All that table is supposed to do is give you a feel for how insurance could cost for a leased car. Why not post a comment below with how much your insurance costed you?