Insurance for Leased Cars: Requirements & Costs
Car leasing companies own the vehicle you are leasing. To protect their investment, a lienholder will require you to purchase extra coverage, including collision and comprehensive insurance, sometimes even gap insurance. This additional coverage will make the cost of insurance higher for your leased car than it would be if you only had the state requirements.
During the entire term of your lease agreement, your leasing company will require you to maintain all the required insurance coverage, including the collision, comprehensive and possibly gap coverage, without a lapse in coverage. However, there are still plenty of ways to lower your auto insurance rate.
State-Mandated Insurance for a Leased Car
If you are a licensed driver and lease a car, you must meet the car insurance minimum coverage requirements of the state in which your leased car is registered. Bodily injury liability insurance and property damage liability insurance pay for damages to others when you are the cause of an accident.
The following state-mandated minimum coverage requirements for car insurance are non-negotiable requirements:
- Bodily injury liability coverage 48 states
- Property damage liability coverage 48 states
- Uninsured motorist coverage and/or underinsured motorist coverage 21 states
- PIP or medical payments insurance 15 states
Visit our state pages to find out what your requirements are.
What Lienholders of Leased Cars Require
Most lessors require more car insurance coverages than your state's minimum insurance requirements. For example, while your state may require only $50,000 of bodily injury liability insurance, your leasing company may want you to increase that limit to $100,000. Of course, an auto insurance policy with a higher maximum dollar-amount payout will be more expensive than a policy with a lower maximum payout.
Comprehensive and Collision Coverage
A leased car is owned by the leasing company. As the rightful owner of the vehicle you're driving, your leasing company will be listed as the "loss payee" and the "additional insured" on your insurance policy. If there is an insurance payout on your leased vehicle, the loss payee will get paid first, thus allowing your leasing company to get reimbursed for its damaged vehicle, especially when that vehicle has been declared a total loss. Full coverage insurance protects the value of the loss payee's leased cars with two different coverages:
Comprehensive insurance helps pay to replace your leased vehicle if it's stolen and repair or to replace that vehicle if it's damaged in a non-collision event that is covered. Comprehensive insurance covers damage from fire, natural disaster, falling object (hail, a broken tree branch), vandalism, mob violence and damage caused by animals.
Your leasing company will also require collision insurance, which covers minor and major damage that results from your leased vehicle hitting something or getting hit by something. Collision coverage covers you in rollover accidents, hit-and-run incidences, and crashes into a light pole, fence, building or, say, another car.
Personal injury protection coverage (PIP) or medical expenses insurance and uninsured/underinsured motorist car insurance will also protect you but are not always required by the state.
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Some Leasing Companies Will Require Gap Insurance
Some leasing companies require gap insurance, which bridges the "gap" between what you've paid and what you still owe on your lease agreement when your leased car is stolen or damaged beyond the cost of repairing it. Since gap insurance covers this balance, your leasing company will get paid by the insurance company, not you.
According to the Insurance Information Institute (III), gap insurance is usually included in the cost of your monthly payments on your lease. Finally, your leasing company will require you to maintain your gap coverage, as well as your auto insurance, during your lease's entire term.
A Leased Car vs. a Financed Car
Buying a car may save you more money than perpetually leasing a car because, in the end, financing a car means you will eventually own that car. However, you could elect to finance the remaining balance after your lease term is up.
Here are some other differences between leased cars and financed cars:
- A leased car has lower monthly payments than a financed car.
- Leasing a car typically entails higher premiums than financed cars because leasing companies have more insurance requirements.
- A car lease usually involves maximum deductible restrictions, which means paying more out-of-pocket money before the insurance company pays with your insurance coverage.
- A leased car usually has a limit of 12,000 to 15,000 miles a year, although you can negotiate a higher threshold. If you go over the agreed-upon limit, you will be penalized. When you finance a car, you have no mileage limits.
- A leasing company expects a certain amount of wear and tear on its leased vehicles. If your company determines that your leased car's damage is above and beyond the normal level of wear and tear, you will be penalized. For a financed car, there is no penalty for any level of wear and tear.
- Leased cars are typically new vehicles or late-model vehicles, which means they are usually covered by the manufacturer's new-car warranty. In fact, not only do you get to tool around in a new car, your lease may include free oil changes and other scheduled maintenance. Financed cars are not necessarily new cars. After all, you can finance a used car just as easily as you can finance a new vehicle.
How To Save Money on Your Car Insurance
When determining auto insurance rates, auto insurance companies take into consideration several factors, including your state, age, gender, marital status, driving record, insurance history, and the age, make and model of your vehicle.
Your insurance rate depends upon how much insurance you buy, among other factors. If you are leasing your ride and you want the cheapest rate for auto insurance, you should buy only the minimum coverage required by the leasing company. Here are some other ways to save on your auto insurance:
- Bundle your home and auto insurance.
- Choose a higher deductible.
- Seek out discounts on your insurance policy.
- Maintain a good credit history and a clean driving record.
- If your child leaves for school, you retire or you experience other big life changes, that's a great time to revisit you auto coverage—you may need less insurance than you have now.
- Shop around, getting at least three quotes from three different insurance carriers.
Car Leasing with Insurance Requirements
Insurance on a leased vehicle includes not only your state's mandated liability coverage but also your leasing company's comprehensive, collision and possibly gap coverage. Not only that, insurance on a leased vehicle must be maintained without interruption for the life of the leasing contract.
While insurance premiums tend to be higher for a leased vehicle, you should always shop around for the best, cheapest insurance policy that meets your lienholder's insurance requirement. Let SmartFinancial sift through hundreds of policies to match you with the right insurance company with the right policy. Just enter your zip code below or call 855-214-2291.
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