Do I need insurance for a leased car?

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Car insurance is a legal requirement in the UK, meaning you can’t take a car on the road without having at least third party cover. When you’re insuring a vehicle you own, you’re free to choose third party-only cover on the understanding that you’ll have to pay for any damage to your own vehicle.

Fully comprehensive cover protects you against damage to other people, their property and you and your own property. Third party-only cover, on the other hand, protects you against damage to other people and their property alone, making it unsuitable for leased cars.

If you were involved in an accident while driving a leased car, and only had third party cover, you’d have to pay for repairs to a vehicle you didn’t actually own. This would be bad enough, but you could also face extra charges when returning the leased vehicle, because of how leasing works.

Typically, when you lease a car you agree to pay a set amount each month over a set period, based on the value of the vehicle and the number of miles you’re likely to drive (this gives the dealer an idea of how the car will depreciate in value over the lease term).

Returning a damaged vehicle at the end of the lease, even if you paid to have it repaired, could result in charges, so you’ll end up paying out twice for the damage. Many lease agreements include charges for ‘excessive wear and tear’, meaning you’ll have to pay out for any damage deemed beyond general wear and tear.

While you’ll definitely need fully comprehensive car insurance on a leased vehicle, you can probably expect to pay a little more for it than you would if you actually owned the car. Some leasing agreements may insist that you also take out gap insurance, which gives the dealer greater protection against damage or theft.

If you buy a brand new car, it’s said to depreciate in value as soon as you drive it off the forecourt. If you were to be involved in an accident a week later and the car was written off, normal car insurance would pay out for the current value of the vehicle, as opposed to what you paid for it brand new.

Gap insurance protects against this kind of shortfall, paying out for the difference between the vehicle’s current value and its retail price. Car leasing companies might insist on gap insurance so that they’re not left out of pocket should the worst happen. If you want to keep costs down, remember that car insurance premiums are partly based on the value and performance of the vehicle being covered.

Cars fall into insurance groups numbered from 1 to 50, from cheapest to most expensive. In group 1 you’ll find relatively cheap and less powerful vehicles, for example the 1 litre Citroen C1 (2005 onwards). In group 50, on the other hand, you’ll find the much more expensive and powerful 4.2 litre Audi R8 Spyder (2010 onwards). So when you’re choosing a car to lease, bear in mind that more powerful and more expensive vehicles will cost more to insure.

The thinking is that more powerful cars are more likely to be involved in accidents, because reaction time decreases as acceleration time increases. Similarly, expensive cars cost more to insure because if you’re involved in an accident the insurer will have to pay out a greater amount for repairs or a replacement. If you’re in the market for car insurance for a leased vehicle or you have a renewal coming up, our comparison tool will help you find the best price on the cover you need – all in just a few minutes.

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