When you lease a car, you must purchase auto insurance coverage, despite the fact that you don’t own the car. Though your state will hold you to the same insurance requirements as anyone else on the road, the dealership that provided you with the lease will likely have additional lease car insurance requirements that you must maintain as a term of your lease.
Remember, car lease insurance is more than a requirement from the dealership. You need insurance that provides you with as much value as possible, and driving a leased car without insurance is not an option.
What is Car Lease Insurance?
Leasing a car is not the same thing as buying a car. The difference between lease and finance is your ownership stake in the vehicle. When you lease a car, you do not own the vehicle in the same way that you would when buying a car with an auto loan. Instead, you’re essentially “renting” the vehicle for the term of your lease, which is usually 2 to 4 years.
At the end of the lease, you’ll return the vehicle to the dealership. The benefits of leasing a car include enjoying a more expensive vehicle at a lower monthly payment, and it also means that the dealership that owns the car can impose insurance requirements on you that go beyond what’s legally required in your state.
If you don’t know how to get insurance for a leased car, remember that lease insurance is auto insurance that you purchase when you’re leasing a vehicle. It’s no more complicated than that.
You cannot drive off the lot in any dealership without having auto insurance, so you’ll need to compare and explore coverage options before you head to the dealership to pick up your vehicle. When you sign onto an insurance policy for a leased vehicle, you must also list the leasing company as an additional insured and loss payee. This means that, in the event of an accident, your leasing company receives any insurance money paid out by your insurance provider to repair the vehicle.
And what happens if your leased car’s in an accident? You have insurance that will cover repairs, replacement, and the payments you owe.
Insuring Leased Cars: Extra Requirements
If you’ve ever owned a car before, you probably already know that most states require you to have auto insurance in order to remain on the road legally. The 2 types of coverages required in most states include the following.
- Bodily injury liability coverage: Bodily injury liability coverage compensates anyone who you injure during an accident for the cost of their medical bills and expenses.
- Property damage liability coverage: Property damage liability coverage compensates anyone whose property you damage during an accident.
Liability coverage requirements vary depending on the state you live in. For example, if you live in Nevada, you must carry at least $25,000 worth of bodily injury liability coverage as well as $20,000 worth of coverage for any property damage that you cause. However, if you live in Alaska, you’ll need to maintain at least $50,000 worth of bodily injury coverage and $25,000 worth of coverage for property damage.
When you lease a car, the requirements to lease a car may go beyond what’s required by your state. Some additional coverages that your leasing agent will likely require you to have include the following.
- Collision coverage: Collision coverage compensates the owner of the vehicle for the cost of repairing damage to the vehicle after an accident. Your leasing company will most likely require you to carry collision coverage because the dealership expects to receive the car back in sellable condition at the end of your lease.
- Comprehensive coverage: Comprehensive coverage is a type of insurance protection that compensates the owner of the vehicle if the car is damaged outside of a collision. Common examples of situations covered by comprehensive coverage include theft, vandalism and damage from lightning strikes.
- Gap insurance for a leased car: Gap insurance specifically covers the difference between the payments you owe and what your insurance will pay.
Your leasing company will also likely require you to carry liability insurance beyond what’s required in your state. The company requires the additional amount because if you have too little coverage to cover the total cost of any injury or damage that you cause, the people who you’ve caused harm to have the option to sue the leasing company for any remaining medical bills or repair costs. This is one of many reasons why it’s usually more expensive to insure a leased vehicle than it is to insure a car that you own.
Yes, the average car lease payment may be lower than you would expect to pay if you buy the car, but you might spend much of that extra cash on insurance. In short, insuring a financed car is much less complicated.
State-By-State Auto Lease Insurance Rules
In addition to state-required liability insurance, you might live in a state that requires additional protections. For example, if you live in Arkansas, you’re required to purchase personal injury protection coverage in addition to standard liability requirements. This type of coverage helps compensate you for your own medical expenses if you’re involved in an accident. If you live in Connecticut, you’ll be required to purchase uninsured motorist coverage, which helps compensate you for damage to your vehicle if you’re involved in a collision with a driver who doesn’t have insurance.
It’s a good idea to research both your state’s insurance requirements and your leasing company’s extra insurance requirements to calculate the total cost that you’ll pay for insurance. In some cases, the lower monthly price that you’ll pay on your lease can be largely negated due to higher insurance coverage requirements.
Call Your Insurance Company Before You Lease a Car
If you know how to lease a vehicle, you should reach out to your insurance carrier before going to the dealership. If you don’t understand the process, do your research before going into the dealership. You don’t want to learn all these things in person when a salesperson is trying to earn a commission.
If you currently own a vehicle and you have car insurance, consider contacting your insurance company to learn more about what you can expect to pay for insurance when you switch from owning to leasing your vehicle. Your insurance agent may also be able to provide you with some basic quotes for vehicles that you’d like to lease, which can help you better estimate what you’ll pay when you sign onto your lease.
Gap Insurance: Do You Need It?
If you’re considering leasing a vehicle, it’s probably because you’re hoping to get a more expensive car than you can currently afford. But what happens if you total the vehicle, and your insurance won’t cover the cost of all of the damage?
Gap insurance is a type of auto insurance policy that helps you cover the difference between what you currently owe on your lease and any payout that your insurance company provides following an accident. If your car is totaled in a major accident, your insurance company will likely limit your payout to the total value of the car at the time of the accident. However, due to depreciation, that payout could still leave you with money owed on your lease, which your dealership will still expect you to cover.
Gap insurance helps fill in the “gap” between these 2 values. Though gap insurance isn’t a required protection, it’s a very smart idea to invest in gap insurance when you’re leasing a vehicle because if that vehicle is totaled, you could be left liable for tens of thousands of dollars of damage.
Best Auto Lease Insurance Carriers
Insurance for a leased vehicle tends to be more expensive than insurance for a vehicle that you own. This makes it especially important to know all your options before you sign onto an insurance policy.
Leasing the Car You Need
If you’re considering leasing a vehicle, it’s important to know all of the types of insurance requirements that you’ll need to invest in before you decide which car you want to lease. Depending on your vehicle and where you live, the insurance requirements from both your state and your dealership might end up costing you more than purchasing a less expensive vehicle outright when you add up both leasing and insurance expenses. Speaking with an insurance agent in your area and getting a quote from multiple dealerships can help you save money if you do decide that leasing is right for you.
Frequently Asked Questions
Is it more expensive to insure a leased car?
It is generally more expensive to insure a leased car because your dealership will usually require you to hold more insurance than the minimum liability coverage required in your state. Leased vehicles also tend to be higher in value, which means that repairs and replacements will cost more on the side of the insurance provider.
Do I need gap insurance for my leased vehicle?
You should purchase gap insurance for your leased vehicle because if you completely total your car in an accident, your insurance will only cover the current value of the vehicle. This practice can leave you liable for any excess expenses if what you owe on your lease is greater than the value of your car. Gap insurance solves this problem by compensating you for the difference in value.