Insurance for a Leased Vehicle
Unlike hiring a car, where the insurance is usually part and parcel of the hiring contract and not something you need to worry about on top, when you lease a vehicle, the car is considered yours as far as insurance is concerned.
Purchasing insurance for a leased car, or car on finance, is therefore identical to if you owned the vehicle.
If you are leasing the car, then it will be a condition of your contract that you cover the vehicle with fully comprehensive insurance. This isn’t really a negative as, though third-party and third-party, fire and theft (TPFT) insurance may lower your premiums, you are unlikely to want to drive a new car and shoulder the responsibility of paying for its repair or replacement should you be involved in a collision.
Remember that you need to have your insurance in place for every minute of driving the car, which means you must set up your insurance before picking up the vehicle.
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 right quote for you and put the insurance in place.
Your insurance certificate must show:
The car registration number, model and make
A start date that is either the date of delivery or earlier
That it is fully comprehensive insurance
Leasing a car usually comes under two headings, each with two parts:
Car finance arrangements:
Hire Purchase (HP)
Personal Contract Purchase (PCP)
Car lease arrangements
Personal Contract Hire (PCH)
Business Contract Hire (BCH)
In the first two examples, you are the legal owner of the vehicle and will have the car documentation registered in your name. Technically, these are not leasing agreements, but financial options for car purchase.
For both PCH and BCH contracts, the finance company remains the registered owner of the vehicle and you are merely undertaking a long-term hiring contract.
If the car lease is a personal contract – either a finance arrangement or a personal contract hire, then the person taking out the car contract should also be the main policy holder on the insurance.
When the lease is for business use, the insurance certificate should be in the company 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 single 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 indicate their position within the company.
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 be determined as a ‘total loss’ by the insurance company.
As your car is driven, its value drops considerably. 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 at that point, your insurance company will reimburse you to that £18,000 level, however 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.
The additional cover 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.
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. When you look for the right GAP insurance for your circumstances, don’t always just accept the first offer you are given by the leasing company.
If you are looking to lease a car for business purposes, do not forget the need for 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 does cover commuting to a single workplace from home, it does not provide insurance in a number of other circumstances including:
Driving between multiple work sites
Driving to clients for meetings or work
Carrying of goods or materials
Use of vehicle as a taxi
Use of vehicle as a courier
If your leased car is for business use, then it is imperative that you also obtain business insurance. While this higher band of car insurance is more expensive than social and domestic insurance, without it you are not considered insured and should you be involved in an incident while using your vehicle for work-related driving, not only will your claim be refuted but you may be prosecuted for driving without insurance.
Both business leasing and business level insurance are more costly than their personal counterparts, but it is important to legally have the right cover in place. Always tell your insurance company the truth regarding your vehicle use so that they can offer you the correct level of cover.