If you lease a car, you may be required to pay for car insurance coverages that are usually optional.
When you lease a car, you’re essentially borrowing the car from a lessor by paying monthly payments until you reach the end of your lease. During that time, the lessor will want to protect his or her financial stake in the car by requiring you to get car insurance. Car insurance coverage will reimburse you when the car is damaged, destroyed, or stolen.
Most states require you to carry some amount of liability coverage, which protects other drivers when you cause an accident and need to repay expenses resulting from their medical or repair bills. Coverages like collision insurance and comprehensive insurance are typically optional, and you avoid them if you have enough cash on hand to pay to replace or fix your car out of pocket.
However, if you lease your car, collision and comprehensive insurance is generally not optional. You may also have to purchase gap insurance, which pays an additional amount on top of collision and comp coverage to make up for the value the car has lost in depreciation against what you owe on your lease.
Read on to learn more about getting insurance for a leased car:
All but two states require you to have car insurance, and almost all of those states require you to have bodily injury liability and property damage liability coverage. These types of coverage protect you from the liability you incur when you cause an accident. The minimum amounts of coverage you need under each liability coverage type vary between states.
No-fault states mandate that you carry personal injury protection (PIP) coverage, which pays your medical expenses and those of your passengers, regardless of who caused the crash.
Requirements for other types of car insurance, like uninsured/underinsured motorist insurance, vary a lot between states. However, your lienholder will almost certainly require it.
Collision and comprehensive insurance, which cover property damage to your car, are generally optional unless you lease your car or purchase with an auto loan.
In order to lease a car, most lienholders require you to have car insurance with the following features. To make sure you have enough coverage in each component, talk to a representative at Policygenius about your coverage needs, and what options are available to you at your budget requirements.
This reimburses you for damage to the car caused by a collision with another car. You’ll be required to purchase a minimum amount of collision coverage, but you may be able to choose your deductible, which is the amount you’re responsible for in any given claim.
Comp reimburses you for damage to your car caused by something other than a collision. That means everything from fire to ice, objects falling on your car, and theft and vandalism. Usually combined with collision, you may also need to purchase a minimum amount and be allowed to choose your deductible.
Since you need to return the car at the end of the lease if you don’t have an option to purchase it, you need to keep it in roughly the same shape as when you first leased it. That means the lienholder may require you to purchase a rider for your collision and comp coverage that requires any repairs to be made using OEM parts, which could make your premiums much higher.
Your leasing company could require you to purchase more coverage in the bodily injury and property damage liability coverages. Generally, you can opt for less coverage in those components as long as you meet your state’s minimum, in return for a lower premium. But leasing companies may increase those minimums, usually by tens of thousands of dollars.
Gap insurance pays the difference between a car’s actual cash value (ACV, its value after depreciation) and the amount you still owe on the lease when the auto insurance company would otherwise only pay the ACV for a total vehicle loss. While not every lienholder requires you to purchase it, gap insurance may be a lifeline if your car gets stolen or is completely destroyed.
Some leasing companies require you to purchase uninsured motorist insurance or underinsured motorist insurance. As the names imply, these coverages reimburse you for damage and loss that you suffer when the other driver doesn’t have enough car insurance to cover all of his or her liability.
“Additional insureds” are anyone you want to be insured under your car insurance policy, such as family members or other people who have your permission to drive the car. Your lienholder may require you to list them as an additional insured as well, with an added stipulation that they be listed as a “loss payee.”
That means the auto insurer can reimburse both you and the leasing company in the event of a claim, depending on which party is owed money. The lienholder will want access to the claim check because, unless you purchase the car at the end of the lease, technically the car is still their property.
Zack Sigel is a SEO managing editor at Policygenius. He covers personal finance, comprising mortgages, investing, deposit accounts, and more. His previous work included writing about film and music.