When you lease a car you have to buy auto insurance, even though you don’t own the vehicle. That’s because you need to meet minimum auto insurance standards wherever you’re leasing as well as any additional requirements your lessor has–like comprehensive and collision coverage. These additional requirements can make leasing a car more costly than you expected.
- Insurance Requirements for a Leased Car
- Is It More Expensive to Insure a Leased Car?
- How To Get Insurance for a Leased Car
- Car Subscriptions
Insurance Requirements for a Leased Car
When you lease a car, 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 coverage you need depends on the state where your car will be registered. Your leasing company might have certain insurance coverage 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. This means that the lessor, because it is the owner of the vehicle, gets the insurance company payout for any damages to the insured vehicle.
Common State Requirements
Car insurance requirements can vary from state to state. The most common is liability insurance, of which there are two primary forms:
- 1. Bodily Injury Liability Coverage, which takes care of medical expenses for people’s injuries, other than yours, in an accident. A minimum of $25,000 per person and $50,000 per accident is typical.
- 2. Property Injury Liability Coverage, which pays for damages to other people’s property in the event of an accident. A minimum of $10,000 per accident is typical.
Common Lessor Requirements
Leasing companies will often require that any possible damage to a leased vehicle be covered by your auto insurance policy. Therefore, they will often require:
- Collision coverage, which pays for damage to your car incurred as a result of a collision with an object or another vehicle.
- Comprehensive coverage, which pays for damage to your car that isn’t caused crashing into an object or another vehicle. These are often called “act of God” events, such as theft, damage from falling objects, and damage caused by natural disasters.
Some lessors also require that your insurance policy include higher limits for liability insurance than the state minimums. 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. Additionally, your lessor might require gap insurance or set a maximum deductible—say $500 to $1,000—for collision and comprehensive coverage.
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Gap Insurance for a Leased Car
Gap insurance covers the difference between the amount that is owed and the actual value of a vehicle, and it might be required by your lessor. It is useful mainly for new vehicles that depreciate rapidly once driven off the dealership’s lot, and typically doesn’t make sense if you lease a used car. There is often a limit to the maximum benefit you can receive from gap insurance; this can range anywhere from $30,000 to $125,000, depending on your policy.
For example, say you lease a new car for $30,000, drive it around for a week and then total it. If your insurance company determines that the actual value of your car is $27,000, then gap insurance covers the $3,000 difference between what insurance will pay and what you owe on the vehicle.
Gap insurance offered by your lessor 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 premium.
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 you to purchase a more expensive plan than one with only the minimum coverage requirements in your state. Higher liability limits, as well as collision and comprehensive damage coverage requirements, often raise the cost of insurance premiums.
Another factor that could lead to higher premiums for individuals leasing vehicles is maximum deductible restrictions. A deductible is how much you pay out of pocket before your insurance company will start to pay. Higher deductible plans typically have lower monthly premiums. If your lessor requires that your deductible be no higher than a particular amount, then you could end up paying more in premiums if you lease rather than buy a car.
How to Get Insurance for a Leased Car
Oftentimes when you sign a lease, you are agreeing to meet insurance requirements for the entire duration of your contract. Here are the steps to take so that you can provide your lessor with proof of insurance before leasing a vehicle:
- Choose the best car for you.
- Speak with your leasing company to learn what the minimum insurance requirements are.
- Determine if you want any additional coverages (like gap insurance).
- Shop around and choose an auto insurance policy.
- Purchase insurance and have your insurer email or fax you or your leasing company proof of your insurance. You can do this on the phone or online, at the dealership or beforehand (if you know the Vehicle Identification Number of the exact car you will be leasing).
- 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 now being offered by several of the 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 being 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—as they are included in the monthly cost—while giving their users the flexibility of no long-term commitments.