Sorting out insurance for a car lease is pretty similar to sorting out car insurance for any other type of car on finance. That said, there are a few key differences though.

I’ve written this guide to help you out and explain exactly how insurance for car leasing works!

What is car insurance?

Okay, it might sounds like a rather obvious question but stay with us – a lot of people don’t completely understand how car insurance works. And who can blame them? Car insurance is pretty damn complicated at times.

Basically, car insurance is an agreement between you and an insurance company where you pay them an amount of money (either upfront or monthly) in return for a guarantee that they’ll pay you a certain sum of money, if you damage another driver’s car and need to repair it.

There’s loads of different types of policies available that give you varying degrees of coverage. I’ve listed them down below.

Types of insurance

So there are three main types of insurance coverage that you can get out on cars normally – third party, third party, fire and theft and comprehensive cover. The only type of coverage that you need to think about with a lease car is comprehensive cover – this will be the type of coverage that insurance companies make you get out on a lease car.

The basic option: Third party

This is the cheapest form of coverage that you get – and you pretty much get what you pay for. You’ll be covered against the cost of damage that you cause to another person’s car but that’s about it. It’s a pretty popular option and insurance companies have cottoned on to this – they’ve raised the price of this coverage, compared to the other two types. This means that you can often find yourself in the bizarre situation where the middle option – third party, fire and theft – can be cheaper than third party.

The middle-ground option: Third party, fire and theft

Third party, fire and theft is the next option up from just basic third party. As well as covering you against any damage that you might cause to another person’s car, this option also covers you against damage to your car that’s caused by fire or if your car is stolen.

The widest form of coverage : Comprehensive

Comprehensive coverage is the best type of insurance policy that you can get. It gives you the same coverage as third party, fire and theft, but with a key difference – you’re also covered against damage that you cause to your own car in an accident that’s your fault.

Most lease providers will demand that you have comprehensive insurance on your lease car. This is because the majority of cars that people choose to get on a car lease are new, high value cars. Insurance companies are looking to protect their investments, so they’ll demand that you get comprehensive.

Other types of insurance you might need with a lease car

As well as the usual comprehensive insurance cover that you’re required to get out on a lease car, there might be another form of coverage you might get asked to get out at the same time – GAP insurance.

GAP Insurance

This might be something your insurance company forces you to get out if you’re leasing a car. It stands for Guaranteed Asset Protection (abbreviated to GAP) and it’s an extra type of insurance coverage that protects the value of the vehicle if you have to make a claim on your insurance.

It covers that gap (clever pun, eh?) in value between what your car was worth at the start of the lease agreement and the value of the monthly payments that you’ve already paid towards the car.

In simple terms, this eliminates the risk of claiming on your insurance and finding that they will only pay out for what the car was worth at the time it was crashed and not at the start of the agreement– a small fact that’s worth paying attention to if you’re leasing.

Say you’ve got a brand new Audi TT Coupe. You’ve paid an initial fee worth 3 months of lease payments and you’re living the dream. Then disaster strikes – you crash 1 month into the lease. It’s a fact of life that cars lose value really quickly (up to around 40% in the first year they’re driven) and this means that the amount the insurance company would be willing to give would likely be a lot less than what they would have done just 1 month earlier. The result? You lose money and so does the finance company that you’re leasing the car from.

GAP insurance reduces the risk of this happening.

How much does insurance cost?

I’d like to tell you that there was one fixed, amazingly low cost for everyone getting insurance, but unfortunately, there isn’t.

There’s no set price for insurance– the cost will vary from driver to driver, depending on how much of a risk the insurance company thinks you are.

Insurance companies are notoriously ruthless when it comes to protecting their cash, so it’s not in their interest to attract the business of drivers who are more likely to get involved in an accident and force them to open their wallets. Naturally, the insurance company will charge a higher price to drivers they think are more likely to get involved in an accident.

There are a few ways that careful drivers can reduce the cost of their insurance policies though. The trick is to prove that you’re a good driver who doesn’t cost the insurance company much.

The best way to do this is by protecting your no claims bonus – an honour that’s conferred on you if you manage to go a year without smashing a car up and claiming. The no claims bonus will roll over from year to year and it’ll give you a discount when you come to renew your policy making it a pretty valuable tool to reduce your overall premium. Kerching.

If you do have an accident, not claiming for the damage to the other driver’s car or your own can actually help to lower your premium when you come to renew.

How is my insurance calculated?

So, you’re probably asking yourself how is insurance calculated? Well, the answer is, through looking at various factors about your life. Things that can influence the cost of your car insurance include:

  • Age
  • Previous claims or no claims bonuses
  • Location
  • Your excess
  • How secure your car is
  • Your job
  • The insurance group your car falls into

How can I reduce my car insurance

For a lot of people (especially less experienced drivers, those who are under 25 and people who’ve claimed on their insurance a few times before) insurance can often be really expensive. Luckily there are a few ways that you can reduce the cost of your insurance premiums though. We’ve explored them in this blog: 7 simple ways you can reduce your car insurance.

Cheapest cars to insure

One factor that influences how expensive a car is to insure is the particular insurance group that it’s in. There are 50 insurance groups, with group 1 cars being cheapest to insure and group 50 cars being the most expensive.

The cheapest cars to insure at the moment include the 13 cars that are in Group 1:

  • Kia Rio
  • Ford Ka+
  • Hyundai i10
  • Volkswagen Fox
  • SEAT Mii
  • Volkswagen Up
  • Skoda Citigo
  • Chevrolet Spark
  • Smart ForFour
  • Nissan Micra
  • Fiat Panda
  • Vauxhall Corsa

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