How To Insure a Leased Car: Coverage Requirements and Options
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Is it better to buy or lease a car? Leasing a vehicle is an excellent option for someone who prefers to drive a new vehicle but doesn't want the higher payments that buying a car typically involves. However, aside from making your monthly lease payments, you'll need to abide by the insurance terms contained in your lease agreement.
Insuring leased vehicles usually requires purchasing higher liability coverage than state requirements, and you may be obliged to get additional insurance, like comprehensive or collision coverage. Here's what you need to know about insurance for leased cars.
Understand the Specific Coverage Requirements for Leased Cars
Let's start with the basics — how does car insurance work? Insuring leased cars starts with purchasing liability insurance and probably a few additional coverages, like comprehensive and collision insurance.
The terms of your vehicle's lease agreement will indicate your liability limits for the car. It will also indicate whether you must purchase collision or comprehensive coverage and for what amounts.
Most leasing companies require leasees to carry higher bodily injury and property damage liability insurance. For instance, if your state's minimum liability coverage is 25/50/15, the lessor may require you to have 100/300/50, or $100,000 per person for bodily injuries in a single accident, $300,000 total for bodily injuries for two or more individuals in an accident, and $50,000 for property damage.
Your contract may also specify the amount of collision and comprehensive insurance on a leased car. When purchasing auto insurance policies, you'll want to request quotes that align with the terms of your contract.
Identify State-Mandated Insurance Premiums
While most states require resident drivers to carry a liability insurance policy, some may require other types of coverage, too. For instance, you might need personal injury protection (PIP) or medical payments coverage if you live in a no-fault state.
Some states require underinsured or uninsured motorist coverage or both. These types of coverage pay for your medical expenses or vehicle damage if a driver hits your vehicle but doesn't have insurance, or their coverage won't pay for the full extent of your losses.
Your lease agreement may not list special state-mandated insurance coverage, so it's a good idea to check with your local Department of Motor Vehicles (DMV) to see if you're required to purchase them.
Review the insurance requirements of your state:
Learn About Comprehensive and Collision Coverage
If you have a leased vehicle, the lessor will probably require you to purchase comprehensive and collision coverage.
Comprehensive insurance pays for any repairs your vehicle requires due to an incident outside your control. It can cover things like vandalism, theft, weather-related damage, or falling objects. If your car sustains damage from the event, you'll pay your insurance deductible, and your comprehensive coverage will pick up the rest of the repair shop bill.
Collision coverage pays for vehicle repairs incurred if you're the at-fault driver in an accident. You pay a deductible to the insurance company, and the insurer will pay for the remainder of the repairs.
Explore the Benefits of Gap Insurance
It's not unusual for lessors to require lessees to purchase gap coverage. Even if your lease contract doesn't require you to buy gap insurance, it may prove helpful if you total the vehicle while it is under lease.
Gap insurance makes up the difference between the remaining balance of your loan and the car's book value. For example, if you wreck the vehicle and the insurance company declares it a total loss with a value of $30,000, but your loan is for $35,000, gap insurance would cover the $5,000 difference. You wouldn't need to come up with the money out of pocket.
Review Coverage Limits and Deductibles
After reviewing your state's car insurance requirements and the coverage required by the lessor, you can list each coverage type you need and their amounts. That can help you keep things organized when you're shopping for insurance.
The insurance company will ask you to choose a deductible for your policy. The deductible is the amount you pay if you need to file an insurance claim. After paying the deductible, the insurer will cover the remainder of the bill.
Your deductible may be as low as $0 or as high as $1,000 or more. A low deductible means you won't need to come up with a lot of money if your car is damaged in an accident, but your monthly insurance rates may be higher. Higher deductibles have the opposite effect. Your monthly payments may be less, but you'll need to pay more out-of-pocket if an accident occurs.
Clarify Lease-End Insurance Obligations
A car lease usually lasts up to three years. When it comes time to turn in the vehicle, the lessor will likely give you a few options: extending the lease, buying it out, or returning the car. If you decide to extend the lease, you'll need to maintain the same level of lease car insurance stipulated in your contract.
If you buy the vehicle, you can finance it with a new loan or pay cash. If you finance the buyout, your new loan will stipulate the insurance coverage you must maintain on the vehicle.
If you buy the car with cash, you won't need to adhere to the insurance terms of a lease contract anymore. As long as you maintain the minimum insurance required by your state, you're free to drive. However, you may want extra coverage to protect your new asset.
If you return the vehicle to the lessor, you're no longer responsible for insuring it. You should keep coverage until the lease expires, but you can cancel it afterward. However, you may transfer your existing policy to the car if you lease another new vehicle.
Compare Premium Rates Among Different Insurance Providers
When it comes to car insurance, it's smart to shop around with several insurance companies. Rates can vary significantly from one provider to another, so comparison shopping can help you find the lowest car insurance premiums.
With EverQuote, comparison shopping is easy. Simply provide us with some information about yourself, the vehicle, and the type of coverage you need, and we'll get quotes from multiple providers in your area so you can get the best deal.
Get started today with EverQuote!