Updated December 16, 20217 min read
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Although your leasing agreement doesn't come with car insurance, you will have to carry enough coverage to meet the requirements set by both your state and your lessor. Because of this, it can be more expensive to insure a leased vehicle, but only because you're required to get more coverage.
Besides injury and property liability coverage, your lessor may require you to purchase insurance for physical damage, such as comprehensive and collision coverage. You may also have to carry gap insurance, which covers the difference between the value of your car and your lease after a loss.
Car insurance coverage isn't included in leasing agreements, so if you lease a vehicle you will need to find and pay for insurance yourself.
Your state mandates the amount of minimum liability and property coverage you must purchase, while your lessor will require you to pay for additional coverage, such as comprehensive, collision, and gap insurance.
While leasing a car doesn't necessarily make insurance more expensive, you could pay higher rates than you would pay for minimum coverage depending on your lessor's requirements.
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When you lease a car, insurance isn't included. Although leasing a vehicle allows you to make less per month than you would for a loan, you will be responsible for finding and purchasing your own car insurance after signing a lease while still making your lease payments.
Because a car lease doesn't include insurance, you should plan ahead to have coverage before you arrive at the dealership. Since you must be insured to drive legally in nearly every state, you won't be able to leave the car lot without insurance for your leased vehicle.
You may add a leased vehicle to an existing car insurance policy, or purchase coverage ahead of time and schedule it to start on the day you plan to pick up your leased car. You can even compare rates online at the dealership and purchase coverage there, as long as you have basic personal information and details about your car.
The insurance you need to legally drive a leased car is not different from what's required for an owned vehicle. Depending on the mandatory insurance limits in your state, you will have to carry:
Liability coverage: Nearly every state except for Virginia and New Hampshire requires drivers to get at least one of the types of liability coverage. The bodily injury portion of a policy pays for the injuries other drivers sustain, while property damage liability repairs or replaces the property you're responsible for damaging.
Uninsured or underinsured motorist coverage (UI/UIM): If you're injured or your property is damaged and the responsible driver can't pay for your expenses, UI/UIM liability coverage can help — though it's not required in every state.
Personal injury protection (PIP): PIP coverage reimburses medical expenses following an accident. If you live in one of the 14 states that require you to carry personal injury protection, you will have to purchase it in addition to the other more commonly required forms of insurance.
Although there's no legal difference between leased car insurance requirements and those for a vehicle you own, there are other coverages that you will have to get under your leasing agreement. Additionally, you may have to list your lessor on your insurance policy as an "additional insured" party and a "loss payee."
In order to protect the value of leased vehicles, the dealership usually requires lessees to add the following extra car insurance coverages to their policies:
Collision coverage: This offers financial protection from damage to your car caused by a collision, no matter who was at fault. Lessors almost always require a minimum amount of collision coverage, but you may have a choice in your deductible amount.
Comprehensive coverage: Often purchased with collision coverage, comprehensive insurance protects your car against damage that occurs while you’re not driving. Comprehensive insurance may cover vandalism, falling objects, extreme weather conditions, and animal damage.
Extra liability coverage: Lessors could require that you get more liability insurance than the legal minimums required by your state. In many places drivers must carry policies with coverage limits of 25/50/25 — $25,000 in bodily injury per person and $50,000 per accident, with $25,000 in property damage coverage. With a leased vehicle, you might have to increase your policy to limits of 50/100/50.
Gap insurance: If you're involved in a crash during the lifetime of your lease, gap coverage will reimburse the difference between what your car is worth after an accident and what you still owe on a lease. If you lease a car that’s worth $35,000 and its value depreciates to $30,000 when you crash it, gap insurance will pay back your lessor the remaining $5,000.
Original equipment manufacturer (OEM) parts coverage: While it's not often required by lessors, OEM coverage pays for the repair and restoration of your vehicle using only parts made by the original manufacturer. OEM coverage allows you to return your leased vehicle close to its original condition at the end of your agreement.
Insurance requirements by leasing companies
The amount of insurance required by leasing companies can vary depending on the lessor. Policygenius has listed below the insurance requirements mandated by manufacturers of some of the most frequently leased cars in the country.
|Lessor||Comprehensive and collision||Liability limits||Maximum deductible|
The cost you pay to insure a leased car isn't different than it is for a vehicle that you own. Insurance rates are determined by personal information, including your driving history, location, credit rating, and insurance record — not your car's financing.
However, companies do charge higher rates for people who want to get more insurance. If you usually prefer to get a full-coverage auto insurance policy — higher limits of liability and physical damage protection — you will pay the same to insure a leased vehicle as one you own. If you typically only get enough insurance to satisfy your state's requirements, you will have to pay more to insure your leased vehicle.
Policygenius recommends that you compare rates from more than one company to get the cheapest auto insurance near you. If you're not sure where to start, our independent brokers can assist you by answering questions about rates, coverage, and more — for free.
Ready to shop car insurance?
Since car insurance for an owned car is the same as a policy for a leased vehicle, you can still get coverage from the same companies. It's possible that your lessor will have a partnership with an insurance company, too. In this scenario, you might get a discount if you insure your leased vehicle with the partnering insurance company.
If you're involved in an accident while driving a leased vehicle, the insurance process will be slightly different from what it would be if you owned the car. When you buy car insurance for a leased vehicle, you have to list the dealership as a loss payee. This means that the claims settlement payout after a crash will be sent to the dealership instead of to you.
Your insurance policy will cover the costs of repairing your leased vehicle's damage if you were responsible. However, if the entire cost of repairs isn't covered by insurance, you will have to pay the difference to your dealership. This could happen if you weren't required to have gap insurance and the value of your car fell beneath the remainder of what you owe on a lease.
Leasing a car may make more sense for some, but it depends on their circumstances and personal preferences.
If you only need a car for a short time, choosing to lease a vehicle may be the better option. Leasing may also be a better option if you like the freedom of being able to switch cars after a few years, instead of reselling a used model farther in the future.
By leasing a car, you can also avoid the interest payments that come with owning a vehicle and paying off a loan. You may spend less money maintaining your vehicle since you'll drive it for a much shorter period of time compared to an owned car.
On the other hand, owning a car may be best if you have to drive a lot. The strict mileage limits accompanying leased vehicles could make it impossible to commute long distances to work frequently.
Leasing a vehicle can seem complicated, so we broke the process down into just a few steps. If you decide you want to lease a vehicle, you should prepare to do the following:
1. Identify the make and model of the car you’d like to lease: When you decide the type of car you want, you can compare the leasing agreements from different dealerships near you. The cost of a lease will depend on which dealership you go to, so you should shop around to find the best price. You can also negotiate the terms of your lease to get a lower payment, just as you would when buying a new or used car.
2. Prepare a budget based on what you could pay: Besides the dealership you choose to get a vehicle from, the amount you spend on a leased car depends on your credit score and risk profile. A score of 680 or higher and a history of safe driving can help you get a better deal. But if you’re a high-risk driver, you may have to pay more to lease a vehicle or you may be denied an agreement altogether. Before agreeing to any agreement, you should be certain that you can make your payments on time. Otherwise, you could face late penalties and even repossession.
3. Make your downpayment and take care of your vehicle: Once you’ve found a deal you're happy with, you’ll make a down payment to your lessor and then monthly payments over your lease term. Near the end of your lease, your car will undergo an inspection for any damage — like cracks or scratches, excessive wear, interior damage — and you will have to pay for repairs before the car can be returned.
4. Decide what to do at the end of your lease: When your lease expires, you may return the vehicle to the dealership and start a contract for another model. You may also choose to purchase the car you've been leasing. If you decide to purchase the car, you will exercise the buyout option included in your agreement, or speak to the dealership about beginning the purchasing process.
Before you lease a vehicle, you should have an idea of how much you can afford to spend comfortably on a lease. When you visit a dealership to apply for a lease, you should bring your driver's license and a paystub for validating your income. You should also know your credit score. Finally, you should have proof of insurance — you won't be able to drive without it.
While your insurance isn't included in a lease, your taxes can be. Depending on the state, you may pay your leased vehicle's sales tax up front. They may also be added onto your monthly payments. If your lessor requires you to pay your taxes up front, you should prepare for that potentially large expense.
Your lease agreement specifies who can operate your vehicle. Usually your immediate family and spouse will be able to drive your car, but lessors may require you to obtain permission before anyone else can drive.