Insuring a leased vehicle

Car owners are likely already familiar with the process involved in insuring it: shop for the policy that works best, agree to the terms and collect the insurance card. However, the process of purchasing insurance for a leased vehicle may require some additional steps.
Leased vehicles also require insurance. Because the vehicle belongs to the company that finances it, there will likely be additional insurance requirements on top of the state-mandated insurance guidelines for car owners. Knowing the ins and outs of the insurance-buying process for leased vehicles helps make the leasing process more efficient and less stressful.
Car insurance for a leased car
The process for insuring a leased car is similar to insuring a financed vehicle. The only difference between insuring a leased vehicle and insuring a vehicle you own is that you may be required to purchase additional coverage, depending on any stipulations outlined by the company financing your vehicle.
“An auto lease doesn’t affect your insurance rate,” says insurance expert Laura Adams. “But it typically requires you to purchase additional coverage than if you own a vehicle.”
Lease insurance requirements differ, depending on what’s specified in your lease agreement. However, there are a few standard coverages that lessees can expect to pay for when insuring their leased vehicle.
Lease car insurance requirements
Because the leasing company owns the car, an auto policy that financially protects the vehicle if it’s stolen or involved in an accident is necessary. Typically, financing companies require collision coverage and comprehensive coverage. Collision coverage helps pay for repairs resulting from an accident, while comprehensive provides coverage for repairs needed if the car is damaged via theft, vandalism or fallen objects.
Liability insurance is also often required to cover at least $100,000 per person for bodily injury caused to others, up to $300,000, and property damage up to $100,000.
“In general, you must purchase guaranteed auto protection, also known as gap car insurance for a leased car,” says Adams. “A gap policy pays the difference between a leased car’s value at the time of a theft or accident and the amount you still owe on a lease.”
It’s important to carefully review the lease terms, as many companies include gap coverage as part of the payments. If this coverage is not included, lessees should select a carrier that offers gap coverage through the auto policy.
Cost of insurance for a leased vehicle
Car insurance for leased cars can be more expensive than for owned or financed vehicles due to coverage requirements. However, many people save money despite the increase in insurance premiums because lease payments are typically lower than if the vehicle was financed.
“Leasing a car comes with financial and lifestyle advantages that can make it a good option for many people,” says Adams. “You make monthly lease payments for a set period and then return the vehicle at the end of the term. Your payments can be substantially lower than if you took out a loan to buy the same car.”
However, the cost of insurance for a leased vehicle can be higher due to the need for increased coverage to protect the financial interest of the company that owns the car.
“Lease car insurance can be higher because the leasing company is the car owner, and they want to reduce their financial risk if it’s stolen or involved in an accident,” explains Adams.
Lessees should scrutinize the terms of their agreement before leasing the vehicle. The perceived savings may not be worth it if the added cost of insurance drives the monthly cost up to that of a financed vehicle. However, purchasing a vehicle requires a long-term commitment, which may not be desirable for drivers that prefer to switch vehicles more frequently and take advantage of newer models. It’s a good idea to weigh all the options carefully to determine which is best for specific situations.
Frequently asked questions
What’s the difference between leasing and financing?
The main difference between leasing and financing a vehicle is that a financing company owns the leased vehicle, while the consumer owns a car that has been financed. Lessees may have less control over how robust their insurance coverage will be, as financing companies have a stake in the vehicle’s welfare. Typically, they will require more coverage than necessary for an owned vehicle.
Is it better to buy or lease a car?
This depends on your personal preference. Leasing a vehicle is usually less expensive than taking out a loan to purchase a car, and shorter lease agreements make it possible to change cars frequently, which can be a significant benefit for those who like to take advantage of the latest models. However, lease insurance can be much higher than insurance for a financed vehicle, so the cost savings from a monthly lease payment may be negated by the insurance premium’s cost.
Do I need to purchase gap coverage for a leased vehicle?
The need for gap coverage depends on the financing company’s lease terms. Some companies include the cost of gap coverage in lease payments, so a separate gap policy may not be needed. It’s important to review the terms of any lease agreement carefully to prevent paying for unnecessary coverage.