Leasing a car can be appealing because it allows you to enjoy a new vehicle without the long-term commitment of ownership or the need to secure a loan for purchase. Usually, car leasing arrangements do not include automobile insurance, and the monthly payments made to the leasing company do not cover insurance premiums. So, you are required to secure the necessary insurance coverage for the leased vehicle separately.
Some leasing companies or dealerships might establish partnerships with insurance firms or have agents on-site to offer added convenience to their customers. They may suggest these insurers or agents to you. It is important to emphasize that there is no requirement for you to purchase insurance from providers associated with the leasing company. You have the freedom to select your auto insurance provider or agent but it is imperative that you ensure your policy aligns with insurance requirements stipulated in your leasing contract.
Typically, lessors include specific insurance provisions in the leasing agreement, and these terms can lead to elevated coverage requirements and subsequently result in higher insurance premiums for leased vehicles when compared to what coverage individuals usually acquire for vehicles they own. Leasing companies often mandate greater liability coverage limits than the minimum state-mandated coverage. They also insist on Collision and Comprehensive coverage to safeguard their leased vehicles. Furthermore, they may stipulate the inclusion of Gap insurance, place upper limits for deductibles or require the use of original parts during vehicle repairs.
Car Leasing and Insurance: The Basics
When insuring a leased vehicle, it’s essential to be mindful of several points and factors. Being attentive and proactive enables you to secure the necessary coverage, which not only satisfies the lessor but also ensures you find the best value for your needs.
1. Insurance is Not Included in Auto Leasing Agreements
One of the misconceptions regarding vehicle leasing is the assumption that insurance comes automatically bundled with the arrangement. Contrary to this belief, this is typically not the norm. When you enter into a vehicle lease, you are essentially engaging in a rental agreement for a set duration, and insurance is a separate requirement that you must independently obtain.
2. Mandatory Insurance Requirements
When you lease an automobile, you’ll need to meet specific insurance requirements. These requirements are set by both your state’s regulations and your lessor (the company leasing the vehicle to you). You must have enough coverage to satisfy the legal obligations of your state, and your lessor may also demand additional coverage beyond the state minimums.
3. Types of Insurance Coverage Required for Leased Vehicles
Leasing companies often stipulate additional insurance to safeguard their investment. These include:
- Liability coverage: Almost every state mandates at least a minimum amount of liability car insurance. This coverage includes bodily injury liability to pay for other people’s injuries and property damage liability to cover property you might damage in an accident. Leasing companies might require higher liability auto insurance limits than the state minimums. For example, your state might require a 25/50/25 policy, but the leasing company may mandate 50/100/50. Depending on your state’s requirements or your needs, your policy may include Uninsured Motorist Coverage and Personal Injury Protection as well.
- Collision coverage: This covers damage to your leased car resulting from a collision, regardless of fault. Leasing companies typically demand collision coverage, and you may have some flexibility in choosing your deductible.
- Comprehensive coverage: This protection safeguards your vehicle from damage not related to a collision, such as theft, vandalism, weather-related damage, and animal incidents.
- Gap insurance: This coverage bridges the gap between your car’s Actual Cash Value and what you still owe on the lease in case of a total loss. Some lessors require this coverage. If it is optional, consider the amount of deposit you put down and your financial position to be able to pay this difference out of pocket before deciding to have Gap insurance or not on your policy.
- Original manufacturer parts coverage: Some leasing agreements may insist on using original parts if the vehicle require repairs by insurance. This condition ensures that the leased vehicle retains its original condition.
4. Insurance Requirements Vary by Leasing Companies
It’s essential to note that the specific vehicle insurance requirements can vary between leasing companies. Before signing a lease agreement, thoroughly review and understand the insurance-related terms and conditions set by your lessor.
The Cost of Insurance for Leased Cars
Insuring a leased car is not inherently different from insuring a vehicle you own. Insurance premiums are primarily determined by factors such as your driving history, age, location, credit rating, and insurance record, rather than the financing arrangement of your car. However, there may be additional considerations to keep in mind that can increase insurance costs when a vehicle is leased.
- Higher Liability Coverage Requirements: If your leasing company demands higher liability coverage limits than your state’s minimum requirements, your premiums may be higher.
- Additional Insurance Requirements: The type and extent of coverage you may have to buy also influence your premium. Buying a full-coverage vehicle insurance policy, which includes higher liability and physical damage protection, will naturally result in increased car insurance cost whether you lease or own the vehicle. Above discussed vehicle leasing company insurance conditions can increase premiums.
- Lessor-Recommended Insurance: Some leasing companies may partner with insurance providers. In such cases, you might receive a discount if you choose to insure your leased vehicle through their preferred insurance partner. You should get a few quotes from other insurers and compare costs before accepting any quote offered from such carriers.
- Shopping Around: To find the most cost-effective insurance premiums for your leased car, it’s advisable to compare rates from multiple insurance providers. To ensure you get the best deal on auto insurance when entering a leasing contract, it’s essential to conduct thorough research ahead of time. Find the most competitive insurer for your specific needs and have them activate the policy coverage when necessary. Waiting until the last minute may lead to higher insurance premiums if you hastily choose an unsuitable and expensive policy out of eagerness to complete the leasing process.
Claims and Insurance with a Leased Car
In the unfortunate event of an accident or damage to a leased vehicle, the insurance process differs slightly from that of an owned car. Here’s what you should know:
- Loss Payee: When you secure insurance for your leased car, you must list the leasing company as a loss payee in your policy. This means that, in the event of a claim, the settlement payout may be sent to the leasing company rather than directly to you.
- Responsibility for the Lease: If your vehicle is totaled or stolen your insurer usually pays Actual Cash Value of the vehicle, which takes depreciation into account. This amount may fall short of what you would owe to the leasing company in such cases and you may have to pay the difference out of pocket, if you don’t have Gap Insurance.
While you need to meet the car insurance requirements of the leasing company, you can still ensure you get the best value coverage by shopping around to find the most competitive insurer for your situation. It is advisable that you start checking your options the moment you decide you would lease a vehicle because leaving it to the last minute may mean that you don’t have time to carry out extensive searches and you miss out on some discounts.
Also, knowing you have plenty of insurance options other than what may be offered by the leasing company or dealership allows you to comparison shop and find the best deal you can find. Remember that you can still shop around online even if you haven’t made any arrangements until you choose your vehicle as this process usually doesn’t take long and you can get instant coverage online through some insurers.