Insuring a leased vehicle
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If you don’t drive much and don’t plan to modify your car, leasing a car may make more sense than buying one. Leasing a car is similar to renting a car; you do not own the vehicle at any point and you will have to return it once your lease expires. Getting car insurance for a leased vehicle may look different than for a financed vehicle, since you have to meet the lease agreement requirements, which could differ from the requirements from your lender when you own the car. Understanding how to get car insurance for a leased car, the requirements and the cost could help you get the best coverage and price for your situation.
Car insurance for a leased car
The process for insuring a leased car is similar to insuring a financed vehicle. The main difference between insuring a leased vehicle and insuring a vehicle you own is that you may be required to purchase additional coverage, depending on any stipulations outlined by the company that owns your vehicle. Leasing your vehicle does not usually directly impact premiums, but some providers may consider it in setting your rate. However, if this is the case, the premium impact is usually minimal.
Lease insurance requirements differ, depending on what’s specified in your lease agreement. However, there are a few standard coverage options that lessees can expect to pay for when insuring their leased vehicle. Most lessors will likely require full coverage car insurance, which includes physical damage coverage to pay to repair or replace your vehicle. This is because state-required minimum coverage does not provide physical damage coverage, which you can choose to include or not include when you own a vehicle.
Lease car insurance requirements
Because the leasing company owns the car, it’s necessary for an auto insurance policy to financially protect damage to the vehicle if it’s stolen or involved in an accident. Typically, leasing companies require collision coverage and comprehensive coverage. Collision coverage helps pay for repairs resulting from an accident, while comprehensive coverage provides coverage for repairs needed if the car is damaged via theft, vandalism or fallen objects.
Liability insurance for leased vehicles is often required to cover at least $100,000 per person for bodily injury caused to others, up to $300,000 per accident, and property damage of at least $50,000. Policyholders with a lease may also consider purchasing gap insurance, which pays the difference between a newer leased vehicle’s value at the time of a theft or accident and the amount you still owe. Another consideration is rental car reimbursement coverage, which will pay part or all of the cost of a rental car while the leased vehicle is being repaired after a covered loss.
It’s important to carefully review the lease terms, as some companies include gap insurance or other optional coverage types as part of the payments. If this coverage is not included, lessees may consider going with a carrier that offers gap insurance coverage through the auto policy.
Cost of insurance for a leased vehicle
Car insurance for leased cars can be more expensive than for owned or financed vehicles due to coverage requirements. For example, if you do not already have higher liability limits, such as a 100/300 bodily injury liability split, you will likely have to increase your coverage to meet the lease terms. If the coverage you carry does not meet at least the minimum lease requirements, the lender can purchase their own car insurance policy at your expense called force-placed insurance. Force-placed insurance is often significantly more expensive than a standard auto insurance policy that you might choose.
“Leasing a car comes with financial and lifestyle advantages that can make it a good option for many people,” says personal finance expert Laura Adams. “You make monthly lease payments for a set period and then return the vehicle at the end of the term. Your payments can be substantially lower than if you took out a loan to buy the same car.”
However, the cost of insurance for a leased vehicle can be higher due to the need for increased coverage to protect the financial interest of the company that owns the car.
“Lease car insurance can be higher because the leasing company is the car owner, and they want to reduce their financial risk if it’s stolen or involved in an accident,” explains Adams.
The make and model of the leased vehicle can also affect the cost of car insurance. Before you commit to a lease, it might make sense to get an auto insurance quote first. This way, you can compare different makes and models to determine which fits your budget for both the lease and insurance payment.
Lessees should scrutinize the terms of their agreement before leasing the vehicle. The perceived savings may not always be worth it if the added cost of insurance drives monthly payments for the vehicle up significantly.
However, purchasing a vehicle requires a long-term commitment, which may not be desirable for drivers that prefer to switch vehicles more frequently and take advantage of newer models. It’s a good idea to weigh all the options carefully to determine which is best for specific situations.
Frequently asked questions
The main difference between leasing and financing a vehicle is that a leasing company owns the leased vehicle, whereas drivers of financed cars technically “own” the vehicle, but have purchased it with the help of a loan that needs to be repaid. Leasing is often compared to borrowing or renting, since drivers only keep the vehicle for a set period of time without ownership. Lessees may have less control over how robust their insurance coverage will be, as leasing companies have a stake in the vehicle’s welfare. Typically, they will require more coverage than necessary for an owned or financed vehicle.
This depends on your personal preference. Leasing a vehicle is usually less expensive than taking out a loan to purchase a car, and shorter lease agreements make it possible to change cars frequently, which can be a significant benefit for those who like to take advantage of the latest models. However, insurance for a leased vehicle could be higher than insurance for a financed vehicle, so the cost savings from monthly lease payment may be negated by the insurance premium.
The need for gap coverage depends on the leasing company’s terms. Some companies include the cost of gap coverage in lease payments, so a separate gap insurance policy may not be needed. It’s important to review the terms of any lease agreement carefully to prevent paying for unnecessary coverage. If the leased vehicle does not come with gap insurance, it may be worth the cost to add it to an insurance policy, since it can protect the lessee financially if the vehicle is totaled in a covered accident and the car’s value is less than what is owed on the remainder of the lease agreement.
The best car insurance company is not always the same for everyone. Some people may only be focused on price, so the company offering coverage may not be as important. However, if you are searching for a company with excellent claims and customer satisfaction or one with strong financial ratings, for instance, it might be worth it to research the companies that meet those criteria. You can then get a quote from each carrier that meets these factors to compare rates and other variables.