Car lease insurance: Is it a thing?

Car lease insurance: Is it a thing?

Car lease insurance isn’t its own thing, per se. Technically, you’re still looking into auto insurance. But leasing companies require customers to carry specific types (and even amounts) of coverage. There’s a good chance the choice not to buy will have you looking at different policies than the car owner down the road (see what we did there?). In fact, while leasing a car lets you forego a big down payment and/or monthly car bill, it’ll likely lead to higher auto insurance premiums. And there are often other clauses in your lease that change how claims and repairs are doled out.

Why is lease car insurance more expensive?

“If you’re leasing a vehicle, you don’t own it,” Michael Barry, vice president of media relations at the Insurance Information Institute, says. As such, the leasing company, who actually holds the title, gets to determine how much insurance you need. And — surprise, surprise — these companies usually require more coverage, not less, than is mandated by your state. That extra coverage ensures they get the car back in one piece at the end of the lease to resell it.

“The big thing is, oftentimes, the leasing company is going to insist [you] get the optional coverages — comprehensive and collision — so no matter what type of incident you’re in, you’re going to be covered,” Barry says.

Lease car insurance requirements

Comprehensive and collision optional? Surprisingly, yes, at least when you own a car (or you’re in the process of paying it off). Remember, by law, you’re usually required to carry auto insurance if you drive a car. The exact type and amount varies by state (you can go here to find out what’s specifically mandated where you live), but most places require, at a minimum, a certain amount of:

  • Liability insurance, which covers any property damage and usually some injuries you cause in a car accident.
  • Underinsured or uninsured motorist insurance, which pays for medical expenses or car repairs if someone with minimal or no insurance hits you with their car and is at fault.

However, as Barry says, a leasing company often requires you to carry the other two big categories of basic car insurance:

  • Collision insurance, which covers damages to the car in a fender bender, accident or other car-to-car incident
  • Comprehensive car insurance, which pays for losses in non-car accident-related incidents, like fire or vandalism.

Car leases and gap insurance

There’s a good chance your leasing company also requires gap insurance to cover depreciation — which, when it comes to cars, happens pretty much the second you drive off the lot. Gap insurance, sometimes called guaranteed auto protection, covers the difference, or the “gap,” between what your car is worth and what the insurance company is willing to pay out on a claim.

So, say your car gets totaled and is worth $15,000 at the time, but you have a $20,000 lease. Gap insurance would cover the remaining $5,000, John Espenschied, owner of Insurance Brokers Group in St. Charles, Missouri, says.

Gap insurance can cost anywhere between $500 and $1,000 a year. But here’s a bit of good news: According to the Insurance Information Institute, its costs are usually absorbed into lease payments. At no point do you actually need to purchase a separate policy. Instead, it’s up to the leasing company or car dealer to get the coverage, and charge you what’s called a gap waiver, usually as a one-time fee.

How do I know what the car leasing company requires for insurance?

The fine print in a lease is where you need to pay attention,” Travis Biggert, chief sales officer at Hub International in Tulsa, Oklahoma, says.

What should you look for specifically? In addition to the extra coverage, the leasing company “will sometimes have maximum deductibles that they will allow you to take,” he says.

Other common stipulations include naming your leasing company as an additional insured and loss payee on your car insurance policy. That means, in the event you’re involved in an accident and file a claim, the company gets access to the claim check.

“Typically, the check would be made payable to both parties to insure the lender or [lessor] would be compensated for the loss,” Espenschied says.

Odds and OEMs

Look to see, too, whether your lease stipulates you buy original manufacturer equipment (OEM) if you need to file a claim and repair the car. Some leasing companies will do so to preserve the original integrity of the car when the lease is up and it goes back up for sale, Barry says.

“In some instances when there are cosmetic replacement parts, like a grill or a bumper, when the car goes in for repairs and you’ve leased the vehicle, the lease will always insist you get OEM parts,” he says.

Leasing a car is a big decision. If you’ve only purchased cars in the past, talk with an auto insurance company or broker about what to expect before signing a lease. They’ll be able to tell what kind of coverage you’re likely to need and, more pointedly, how much you’re likely to pay to insure your borrowed ride.