Leasing A Car? Prepare For Higher Auto Insurance Premiums

Leasing a car is a popular option for those who want to drive a new vehicle without the higher payments associated with financing. However, it's important to consider the additional costs that come with leasing, including the cost of insurance. So, is auto insurance more expensive when you lease? The answer is generally yes. While leasing a car may result in lower monthly payments than financing, the insurance requirements for a leased vehicle are typically more stringent, leading to higher insurance costs. This is because leasing companies require comprehensive and collision coverage, as well as higher liability limits to protect their asset. These requirements can increase the overall cost of insuring a leased vehicle compared to a purchased one. However, it's worth noting that insurance rates are also influenced by factors such as driving history, vehicle type, and state regulations, so it's essential to shop around and compare rates before making a decision.

Higher liability coverage limits

When leasing a car, you will be required to have a higher liability coverage limit than if you owned the car. This is because the leasing company owns the vehicle and will want to protect their asset.

Liability car insurance provides financial protection for the driver if they harm someone else or their property while driving. It covers the financial cost of any injuries and damage caused by the driver, but not the driver themselves. This includes medical expenses for those injured in the accident and repair costs for damage to another person's property.

The liability coverage limit is the maximum amount that the insurance company will pay out for injuries and damage per person and per accident. For example, a common liability coverage limit is $50,000/$100,000/$30,000, which means that the insurer will pay out a maximum of $50,000 for bodily injuries per person, $100,000 total for bodily injuries per accident, and $30,000 for property damage per accident.

When leasing a car, the leasing company will set higher liability coverage limits than the state minimums. For example, while a state might require a minimum liability coverage of $25,000 for injuries to one person, the leasing company might require coverage of $100,000 per person. This is to ensure that they are protected from potential lawsuits if the driver causes an accident. As the lessee, you are responsible for ensuring that the leasing company is listed as a loss payee and additional insured on your insurance policy. This means that if any damages are incurred to the leased vehicle, the leasing company will receive the insurance payout.

It is important to note that the higher liability coverage limits required by leasing companies will result in higher insurance premiums for the lessee. While leasing a car may have lower monthly payments than financing a car purchase, the cost of insurance should be considered when deciding between leasing and buying a car.

Comprehensive coverage

When leasing a car, you are required to have your own insurance policy. This insurance policy is likely to be more expensive than if you owned the car. This is because leasing companies have more insurance requirements than lenders, and they own the vehicle outright.

When leasing a car, the leasing company will require you to have comprehensive coverage to protect their asset. This is because the leasing company retains ownership of the vehicle and does not want to risk its value. The cost of comprehensive coverage depends on factors such as the value of the vehicle, the location where it is registered, and the driver's insurance history.

While comprehensive coverage is not required by law in most states, it is highly recommended for leased vehicles. It is worth noting that the cost of comprehensive coverage can be reduced by choosing a higher deductible, which is the amount you pay upfront when making a claim. However, this will increase the amount you pay out of pocket in the event of a loss.

Collision coverage

There are some instances when collision coverage does not apply. For example, it does not cover damage to another vehicle, medical expenses, theft or vandalism damage, collisions with animals, or damage caused by weather or fallen objects. These instances are covered under comprehensive coverage.

The cost of collision coverage varies depending on various factors, such as the driver's age, gender, marital status, and driving record, as well as details about the vehicle and location. The deductible for collision coverage, which is the amount the policyholder must pay before the insurance company pays out, typically ranges between $500 and $1,500.

When deciding whether to purchase collision coverage, consider the value of your vehicle, your ability to pay out of pocket for repairs or replacement, and whether your vehicle will be in storage for an extended period.

Gap insurance

When you buy or lease a new car, it starts to depreciate in value as soon as it leaves the car lot. Most cars lose 20% of their value within a year. Standard auto insurance policies cover the depreciated value of a car, meaning they pay the current market value of the vehicle at the time of a claim. However, if you have only made a small deposit, the amount of the loan may exceed the market value of the vehicle. This is where gap insurance comes in. It covers the difference between what a vehicle is worth and what is owed on it.

• Made less than a 20% down payment
• Financed for 60 months or longer
• Purchased a vehicle that depreciates faster than the average
• Rolled over negative equity from an old car loan into the new loan

Your car dealer may offer gap insurance when you purchase your new vehicle, but most car insurers also offer it and usually charge less than the dealer. Including gap insurance with collision and comprehensive coverage typically adds only about $20 a year to the annual premium.

State requirements

While the type and amount of car insurance required vary from state to state, the state requirements for car insurance are the same whether you lease, finance, or own your car outright. Here are the state requirements for insurance when leasing a car:

Common State Requirements

The most common type of required car insurance is liability insurance, which has two categories:

• Bodily Injury Liability Coverage: Pays medical expenses for other people after an accident. A minimum of $25,000 per person and $50,000 per accident is most common.
• Property Damage Liability Coverage: Pays for damage to other people's property after an accident. A minimum of $10,000 per accident is typical.

Some less common requirements are uninsured/underinsured motorist coverage and personal injury protection.

State-Specific Requirements

Some states require additional coverage beyond the standard liability insurance. These may include:

• Uninsured Motorist Coverage: Covers medical expenses for you and your passengers if you are in an accident with an uninsured driver.
• Medical Payments Coverage: Pays for medical expenses regardless of who is at fault in the accident.
• Personal Injury Protection: Covers medical expenses, lost wages, and other costs associated with an accident, providing more comprehensive protection than uninsured motorist coverage.

It's important to note that these requirements are set at the state level, so the specific coverages and minimum amounts may vary depending on the state where the car is registered.

Frequently asked questions