Do you have to pay insurance when leasing a car?

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Things to Remember...

  • Car insurance requirements vary from one state to the next
  • Liability insurance is mandated in most states on all vehicles
  • Comprehensive and collision coverage is required by all leasing companies
  • Many leasing companies also require gap insurance
  • Leasing companies are also known for requiring higher amounts of insurance coverage
  • If you have questions about car insurance coverage, you should talk to your insurance agent or your leasing company to be sure you are in compliance with state laws and your leasing contract

If you have never leased a car before, you may be wondering about the benefits of leasing, as well as the obligations. Car registration and purchasing car insurance are just two of these obligations.

If you are wondering about getting cheaper car insurance rates for your purchased or leased vehicle, try an online comparison tool when shopping for auto insurance.

Start comparing car insurance rates now by using our FREE quote tool above!

Benefits of Leasing a Vehicle

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More and more people are leasing their vehicles instead of buying them outright. This could be due, in part, to the many benefits of leasing over purchasing. These benefits include:

  • The potential for no down payment, or a small down payment
  • The ability to drive a better vehicle at a more affordable price
  • The fact that the driver is covered by the manufacturer’s warranty, for usually most of the leasing period, if not all
  • The privilege of driving a late-model vehicle
  • Not having to trade in or sell a vehicle when you are ready for a new one

Insuring Your Leased Car

While leasing a car does remove some of the burdens and hassles of owning a car, people who lease a vehicle are still required to purchase insurance policies for their car.

There are legal requirements, as well as requirements from the leasing company or dealership that the person leasing the vehicle is obligated to abide by.

These requirements are in place to protect both the person leasing the vehicle and the interests of the leasing company.

Types of Insurance

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While insurance requirements can vary from one state to the next, in general, a leasing company will require you to have these types of coverage:

  • Collision – This type of coverage is used when there is damage to the vehicle from impacting another car or object, such as a traffic light or brick wall
  • Comprehensive – Under comprehensive coverage, the vehicle is covered for situations such as hitting wildlife, theft, or natural disasters

Other types of insurance coverage that may be mandatory in your state or wise to consider include:

  • Bodily Injury Liability – Most states make this type of coverage a legal requirement of all drivers. In the event that you cause an accident and someone else is hurt or killed, this coverage is extremely valuable
  • Property Damage Liability – This coverage is for situations where you are again at fault, but damage or ruin the property of someone else. In most cases, it is a vehicle, but it could also be utility poles, trees, or garage doors. It is also mandated in most states
  • Uninsured/Underinsured Motorist – If you are hit by a driver who does not have auto insurance or is not adequately covered, this coverage is essential, which is why many states require it of their drivers. You are allowed to purchase more than the required amount, however, many drivers elect to purchase greater amounts of collision and comprehensive coverage instead
  • Medical Payments – If you or one of your passengers are injured in an accident and need medical care, it will be covered under the medical payments coverage part of your car insurance policy. This coverage is accessible no matter who is at fault for the accident and some states may legally require it

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Gap Insurance Coverage

In addition to comprehensive and collision coverage, most leasing companies will require their customers to have gap insurance as well.

This is because even for brand new vehicles, their value declines fairly quickly. Which means, if you were to get into an accident at any point after driving it off the sales lot, your comprehensive and collision coverage would likely not cover the full amount owed on the vehicle.

There would be a “gap”, so to speak, in between what your car insurance company decides is the fair market value for the vehicle and what was still owed on the lease, or if you had purchased the vehicle, the loan.

For leased vehicles, gap insurance is usually included in the lease payments.

The person leasing the car does not actually buy a single policy. Instead, the car dealership or leasing entity purchases a master policy from an insurance company that covers every car that it leases out.

The spread the cost of this master policy throughout all of the cars that they lease and technically you have purchased a gap waiver and are covered under their gap policy.

However, people leasing a vehicle should check with their leasing company for more specifics and to make sure that they are covered.

How Much Coverage Do You Need?

While it is vital to pay attention to your state laws and lease agreement requirements, people leasing a vehicle should evaluate their coverage amounts to make sure they are appropriately covered, yet not paying too much in car insurance premiums.

Some points to consider:

  • In addition to requiring comprehensive and collision coverage, most leasing companies will require a maximum deductible, usually between $1000 and $500.
  • There are some states that require as little as $12,500 for bodily injury liability and $5,000 in property damage liability. However, most leasing companies will require more. It is not unheard of for them to set their requirements at $100,000 per person for bodily injury claims and $50,000 for property damage.
  • These higher requirements protect the leasing company. If you are in an accident, other parties can come after the leasing company as a liable party that they can demand compensation from.

The bottom line is that people who are leasing the vehicle will need to be sure they are purchasing the legally and contractually required insurance types and amounts.

If they have questions, they should talk to their leasing company or their insurance agent.

Whether you are leasing or taking out a loan on a vehicle, or even if you own your vehicle free and clear, having the legally required and appropriate amounts of insurance for you is very important.

While some may find it difficult to afford the insurance that they are mandated to have or they simply need, it is easy to search for lower auto insurance premiums online with a price comparison tool.

Start comparing auto insurance rates now by entering your zip code in our FREE quote tool below!

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