What Insurance Do You Need for a Leased Car?

What Insurance Do You Need for a Leased Car?

Leased cars typically need a full-coverage insurance policy. That’s because you need to meet at least the minimum auto insurance standards of your state, as well as any additional requirements your leasing company has, like comprehensive and collision coverages.

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Leased car insurance requirements

When you lease a car, insurance coverage is mandatory; you can’t drive off the lot without it. Because auto insurance requirements are set at the state level, the amount of basic coverage you need depends on the state where your car will be registered. Your leasing company will likely have certain insurance coverages that it requires as well, and certain models will be more expensive to insure than others.

Moreover, you must list 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.

Common state requirements

Car insurance requirements vary from state to state. 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.

Keep in mind that the minimum coverage required by a state may not cover all of the costs that result from an accident. Selecting higher liability limits is a relatively cheap way to increase your protection.

Common requirements by leasing company

Leasing companies often require a full-coverage insurance policy to cover damage to the leased vehicle. This typically comes in the form of two coverages.

  • Collision coverage pays for damage to your car resulting from a collision with an object or vehicle that you cause.
  • 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.

Some leasing companies also require more liability coverage than what states require. Typically, leasing companies require $100,000 of bodily injury liability coverage per person and $300,000 per accident, as well as $50,000 in property damage liability insurance.

Car leasing with insurance

Leasing company
Insurance requirements
GM
  • Full comprehensive and collision coverage: max. deductible of $1,000
  • Bodily injury liability: $100,000 per person/$300,000 per accident
  • Property damage liability: $50,000 per accident
Honda
  • Full comprehensive and collision coverage: max. deductible of $1,000
  • Bodily injury liability: $100,000 per person/$300,000 per accident
  • Property damage liability: $50,000 per accident
Kia
  • Full comprehensive and collision coverage: max. deductible of $1,000
Mercedes-Benz
  • Full comprehensive and collision coverage: max. deductible of $2,500
  • Bodily injury liability: $100,000 per person/$300,000 per accident
  • Property damage liability: $50,000 per accident
Show All Rows

Leased cars from Kia and Toyota are the best options if you want to minimize how much insurance you buy. These companies don't require additional liability coverage beyond what's required in your state.

Gap insurance for a leased car

Gap coverage may be required by your leasing company as an add-on. It may also be automatically included as part of the price of your lease using the more generic term "lease coverage".

Gap insurance covers the difference between the amount owed and the actual value of a vehicle. It is useful mainly for new vehicles whose value depreciates rapidly once you drive off the dealership lot. It typically doesn’t make sense if you lease a used car.

For example, say you lease a new car that's valued at $30,000, drive it around for a week and then total it in an accident. If your insurance company says the car is only worth $27,000, then gap insurance covers the $3,000 difference between what insurance will pay and what you owe on the vehicle.

This prevents you from having to make payments for a car you don't drive anymore.

There is often a limit to the maximum benefit you can receive from gap insurance. This may range from $30,000 to $125,000, depending on your policy.

Gap insurance for a leased vehicle can be either an additional monthly charge or a one-time upfront fee. If you purchase gap insurance through an auto insurer, the cost of coverage is added to your monthly bill.

Is it more expensive to insure a leased car?

Whether the vehicle is leased or owned has nothing to do with the cost of insurance.

However, leasing companies typically require a more expensive plan than one with only the minimum coverage requirements in your state. Higher liability limits, as well as collision and comprehensive coverage requirements, often raise the cost of insurance.

Another factor that could lead to higher auto insurance rates is the maximum deductible restrictions. A deductible is how much you pay for repairs before your insurance company starts to pay. If your leasing company requires a low-deductible plan, your insurance will cost more.

How to get insurance for a leased car

When you sign a lease, you agree to meet insurance requirements for the duration of the contract. Here are steps to take to provide your lessor with proof of insurance:

  1. Choose the best car for you.
  2. Ask your leasing company what the minimum insurance requirements are.
  3. Determine if you want any additional coverage, like gap insurance.
  4. Shop around and choose an auto insurance policy.
  5. Purchase insurance and receive proof of insurance. You can do this on the phone or online, at the dealership or beforehand (if you know the Vehicle Identification Number of the specific car you will be leasing).
  6. Provide the leasing company with proof of insurance, sign your lease and enjoy your new vehicle.

Car subscription services

Car subscription services offer alternatives to traditional car leases. These services are offered by several major car dealers. Here is how they typically work:

  • Sign up for your first month.
  • Select a car and use options, like how many miles you can drive in a month without additional charges.
  • Have the car delivered to you.
  • At the end of the month, return your car or renew your subscription.

Subscription programs are offered through several companies, such as Canvas (Ford), Care (Volvo) and Book (Cadillac). The advantage of these programs is that they remove the hassle of shopping for car insurance and dealing with car maintenance — these are included in the monthly cost — while giving users the flexibility of no long-term commitments.


Frequently asked questions

Is insurance cheaper when you lease a car?

Car insurance is often more expensive when you lease a car because leasing companies require more insurance coverage than state minimums. This usually includes full comprehensive and collision coverage to pay for any damage to the leased car, as well as higher liability limits.

How does car insurance work on a leased car?

You'll need to buy car insurance before you drive the leased car off the lot. Check what types of insurance the leasing company requires — typically a full-coverage policy.

Does a leased car need different insurance?

A leasing company usually requires full-coverage insurance, which is more than the minimum state requirements. This includes comprehensive and collision coverages to pay for any damage to the car. You may also be required to have higher liability coverage than what the state requires. And you may also need gap coverage.

Sources

Insurance requirements were sourced from leasing company websites and from state departments of motor vehicles (DMVs).

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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