Leasing A Car? Prepare For Higher Insurance Premiums

Leasing a car is a popular option for those who want to drive new vehicles without the higher payments that come with financing. However, one factor that may be overlooked when considering a lease is the cost of insurance, which is typically higher than that of a financed or owned vehicle. This is because leasing companies often require higher levels of insurance coverage, such as comprehensive and collision coverage, to protect their assets. While the specific requirements vary from state to state, leasing companies generally set higher liability coverage requirements for bodily injury and property damage than what an individual might choose for themselves. In addition, leasing companies may require gap insurance, as new vehicles depreciate quickly, and lower deductibles, both of which contribute to higher insurance premiums. As a result, individuals considering a lease should be prepared for the potential of higher insurance costs compared to other options.

Leasing companies require higher minimum coverage amounts

Leasing companies will typically require you to carry physical damage coverage for your leased vehicle, commonly known as comprehensive and collision coverage. Many leasing companies will also require you to carry higher bodily injury liability limits, such as $100,000 per person and $300,000 per accident, and a set amount of property damage liability coverage, such as $50,000. These requirements can increase the cost of insurance for a leased vehicle compared to a financed or owned vehicle.

Additionally, leasing companies may require gap insurance, which covers the difference between what you owe on your lease and the depreciated value of the vehicle if it is stolen or totaled. Gap insurance is typically optional for an auto loan but may be required for a leased vehicle since new vehicles depreciate quickly once driven off the dealer's lot.

The cost of insuring a leased vehicle will depend on several factors, including the requirements of the leasing company, the state in which you live, and the make and model of the vehicle. It's important to carefully review the insurance requirements and costs before deciding to lease a vehicle.

You need insurance coverage for your vehicle

Whether you buy or lease a car, you need insurance coverage for your vehicle. However, leasing companies typically have more insurance requirements than lenders, so you can expect to pay more for car insurance on a leased vehicle compared to a financed or owned one.

Leasing companies require higher minimum insurance coverage to protect themselves against potential lawsuits. As the owner of the vehicle, the leasing company could be sued by an injured party if you, the driver, do not have sufficient insurance coverage to pay for the costs associated with the accident. Therefore, leasing companies usually require comprehensive and collision coverage, also known as physical damage coverage, as well as higher liability limits for bodily injury and property damage. For example, bodily injury liability limits of $100,000 per person and $300,000 per accident, and property damage liability limits of $50,000 per accident.

In addition to comprehensive and collision coverage, leasing companies may also require gap insurance, which covers the difference between what you owe on your lease and the depreciated value of the vehicle at the time of the accident or theft. This is because new vehicles depreciate quickly once they are driven off the dealer's lot, and a vehicle that is totalled soon after the lease starts can mean the lessor cannot recoup the total loss without a gap policy in place.

The cost of your insurance coverage will depend on the requirements set forth in your state, as well as those outlined by the leasing company. While the state you live in determines whether you need medical payments coverage, personal injury protection, or uninsured motorist coverage, the leasing company's requirements for coverage levels and higher liability limits can increase your rates.

Gap insurance is often required for leased cars

When leasing a car, you are required by law to have your own insurance policy. Nearly all lessors will require comprehensive and collision coverage, and some will require liability limits above your state's minimums. Some common types of insurance coverage include:

• Bodily injury liability: Covers medical expenses for others injured in an accident for which you are at fault.
• Property damage liability: Covers damage to another person's property in the event of an accident.
• Comprehensive coverage: Covers damages for non-motor vehicle accidents, such as theft, vandalism, fire, and weather events.
• Collision coverage: Covers repairs to your car when damaged in an accident.

In addition to these basic types of coverage, gap insurance is often required or offered for leased cars. Gap insurance covers the difference between what you owe on your lease and the depreciated value of the vehicle at the time of an accident or theft. This type of insurance is especially important for leased cars because they depreciate quickly once driven off the dealer's lot. If the vehicle is totalled soon after the lease starts, the lessor may not be able to recoup the total loss without a gap policy in place.

The requirement for gap insurance on a leased vehicle can vary. Some lessors may require it as an extra layer of financial security, while others may offer it as an optional add-on to your lease agreement. Even if gap insurance is not required, it can still be beneficial to have as it provides added peace of mind and financial protection in the event of an accident or total loss of the vehicle.

Higher liability coverage requirements

When leasing a car, the dealership retains ownership. As the car's owner, the dealership will require higher liability coverage to protect its asset. This includes bodily injury liability and property damage liability. Bodily injury liability covers medical expenses for others injured in an accident for which you are at fault, while property damage liability covers damage to another person's property.

Nearly all lessors will require comprehensive and collision coverage on a leased car, and some will require liability limits above your state's minimums. Many leasing companies require higher minimum coverage amounts on leased vehicles, which can include bodily injury liability limits of $100,000 per person and $300,000 per accident, as well as property damage liability limits of $50,000 per accident. These higher coverage amounts contribute to the overall cost of insuring a leased vehicle.

In addition to the higher coverage amounts, leasing companies may also require a lower deductible, which can further increase the cost of insurance. The deductible is the amount that the policyholder must pay before the insurance company pays out any money toward a claim. A lower deductible results in higher insurance premiums.

It is important to note that the cost of insurance for a leased vehicle can vary depending on the state you live in and the requirements set by the leasing company. While leasing a car may result in higher insurance premiums, it is not because the car is leased but rather due to the higher coverage requirements and restrictions imposed by the leasing company.

Comprehensive and collision coverage requirements

Nearly all leasing companies will require comprehensive and collision coverage on a leased car. This is because the leasing company still owns the car and has a financial interest in it. Comprehensive coverage pays for damage to your car that isn’t caused by crashing into an object or vehicle. These are often called "acts of God", such as theft, damage from falling objects, and damage caused by natural disasters like floods and hailstorms. Collision coverage, on the other hand, pays for damage to your car resulting from a collision with an object or vehicle that you cause.

In addition to comprehensive and collision coverage, leasing companies may require liability coverage for bodily injury and property damage. This is to protect themselves against potential lawsuits. If you caused an accident that injured someone or caused major property damage, that individual could sue the owner of the vehicle, which would be the leasing company, if you didn't have sufficient insurance coverage to pay for the costs. Most leasing companies require bodily injury liability coverage of $100,000 per person and $300,000 per accident, as well as $50,000 in property damage liability insurance.

The cost of your insurance coverage will depend on the requirements set forth in your state as well as those outlined by the leasing company. Certain makes and models are also more expensive to insure. It's important to note that you must include the leasing company as an additional insured and loss payee on your insurance policy. This means that even though you're paying for the insurance policy, the leasing company, as the car's owner, would receive any insurance payouts for damage to the vehicle.

Frequently asked questions