December 8, 2023

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What Insurance Do You Need for a Leased Car? | Auto Insurance

If you decide to lease a car, you should understand your insurance requirements before signing the paperwork. This guide will help you understand what coverage you should have, how much it might cost, and the best way to get cheap insurance for your leased car.

The type and amount of insurance you need for a car varies by state, but those requirements are the same whether you finance, lease, or own your car outright. In all states except New Hampshire and Virginia, you are required to carry a minimum amount of liability protection, including:

  • Bodily injury liability insurance. If you’re found at fault for causing an accident, bodily injury coverage will help pay for the medical expenses and lost wages of persons other than yourself or your family who have been hurt.
  • Property damage liability insurance. This coverage will help pay for repairing any damage to others’ vehicles or property if you’re found at fault in an accident. As with bodily injury protection, this coverage does not apply to you or your family members.

Depending on where you live you may also be required to carry additional coverage, such as:

  • Uninsured and underinsured motorist insurance. This kicks in if you’re hit by another driver who doesn’t have insurance or doesn’t have enough coverage to pay for your related expenses. It will also pay if the car is involved in a hit-and-run accident.
  • Personal injury protection (PIP). A handful of states require drivers to carry personal injury protection insurance, also known as no-fault insurance. This covers medical expenses for you and your passengers in the event that you’re hurt in a collision, no matter who may have been at fault. It does not cover the medical bills of other drivers and their passengers, nor does it cover repairs to your vehicle or those of other drivers.

Leasing a car requires a payment agreement with a lender, just like financing a car with a vehicle loan. The lender, or lessor, will typically have additional coverage requirements you must meet to satisfy the insurance part of the leasing agreement. These are commonly referred to as full coverage because they protect you and the car. Besides liability insurance, you may need to purchase:

  • Comprehensive coverage. This applies to damage to your vehicle caused by events that are outside of your control, such as fire, theft, vandalism, weather events, and hitting or being struck by an animal. 
  • Collision coverage. This applies to damage to your vehicle that is caused by hitting another vehicle or object, like a fence, guard rail, or building, or if your vehicle overturns. 

Your lessor may require you to carry a specific amount of coverage, like a maximum deductible of $1,000 for comprehensive and collision coverage. You may also have to carry more than the state-mandated minimum amount of liability insurance. It’s important to check the lease agreement details to ensure you’re meeting or exceeding the minimums when getting insurance on a leased car.

If your car is stolen or totaled in a collision, the amount you still owe on your lease (or on your loan, if you’ve financed the vehicle) may be greater than the car’s book value. Reimbursement from your insurer will go directly to the leasing company, which holds the title to your vehicle, leaving you responsible for any remaining balance on the loan. For example, if your car is valued at $25,000 at the time of the accident, that’s how much your insurer will reimburse. If your loan balance is $30,000, you’ll have to pay the remaining $5,000 yourself.

Gap insurance protects you from such a financial catastrophe by covering any such balance you may owe. It will not provide compensation for things like medical bills, lost wages, or legal costs. You may be offered gap insurance as part of the lease agreement, which will roll the cost of the gap insurance into your monthly payments. You might also be able to buy gap insurance directly from your insurance company, although not all insurers offer this kind of coverage.

Car insurance for a leased car can be expensive because you must carry full coverage, rather than only the state-mandated minimum. How much you’ll pay for leased car insurance varies by company and the city and state you live in. The year, make, and model of the car you lease also affect the cost of car insurance. For example, an expensive sports car may be more expensive to insure than a smaller and safer sedan. Your personal and household characteristics also make a difference, including your age, gender, claims history, and driving record.

Although you might have to pay extra for coverages to insure a leased car, there are still ways you can lower the overall cost of insuring a leased car:

  • Bundle your policies: Often the discount with the biggest impact on your car insurance premium is the bundle, or multi-policy discount. If you insure both your car and home or renters insurance with the same company, you might be able to save on leased car insurance.
  • Shop around: Getting at least three quotes from different insurance companies can help you find the lowest rate. Just make sure you get quotes for the same coverages so you’re doing an apples-to-apples comparison.
  • Ask about discounts: Bundling isn’t the only discount opportunity you have to lower the cost of insuring a leased car. You may be able to lower your premium with savings for driving safely, paying your policy in full, reducing the number of miles you drive, and other discounts for working in a specific occupation or being a member of an organization.
  • Raise your deductible: Increasing your comprehensive and collision deductibles may lower your premium, but you’ll have a higher out-of-pocket cost if you have to file a claim. If you are thinking of raising your deductible to lower the cost of insuring a leased car, make sure you don’t exceed the maximum deductible outlined in your lease agreement.

No, car insurance is not included in a lease. This is no different than financing a car, which also does not include car insurance as part of the loan agreement. Before you lease or finance a car, it’s a good idea to contact your current insurance company to find out if getting a new car will cause your rates to change and by how much. If you don’t have car insurance currently or think you could save money by switching insurers, our car insurance comparison tools can help you find a policy to fit your needs.

The cheapest car insurance depends on many factors, including the coverage levels you choose, where you live, your age, and your driving history. Each company has its own rate structure, too, so it’s best to get quotes from at least three different insurers to find out which one has the cheapest car insurance for your personal and household characteristics. Though USAA and Geico often have the cheapest car insurance premiums on average, based on our research, your rates may be cheaper elsewhere.

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