Even though you don’t own the car, auto insurance must be purchased when you lease it. This is because you must meet the minimum auto insurance requirements wherever you lease a car. You also need to comply with any additional requirements that your lessor may have, such as collision and comprehensive coverage.
For a leased car, you will need insurance
Car leasing requires that you have insurance. You can’t drive the car off the lot if you don’t have it. Auto insurance requirements are determined at the state level. The amount of coverage that you require will depend on where your car is registered. The leasing company may require certain insurance coverage. Certain models are more expensive to insure.
You must also list the leasing company in your insurance policy as an additional insured or loss payee. The lessor is entitled to any insurance company payments for damage to the insured vehicle.
Common State Requirements
There are different requirements for car insurance. Most common is liability insurance. There are two main forms of it:
- Bodily injury liability coverage – covers medical expenses for others injured in an accident. It is common to have a minimum of $25,000 per person, and $50,000 per accident.
- Property Damage Liability Insurance – covers damage to property caused by an accident. It is common to pay at least $10,000 for each accident.
Some less-common requirements are uninsured/underinsured motorist and personal injury protection coverage. Find out the minimum requirements for car insurance in your state.
Remember that the minimum coverage required in a state may not be sufficient to cover all damages resulting from an accident. Choosing higher liability limits can increase your protection.
Common Lessor Requirements
Leasing companies may require that any damage to a leased car be covered by your auto policy. You may be required to:
- Collision coverage pays for the damage to your vehicle that results from a collision between another vehicle or object.
- Comprehensive coverage- covers damage to your vehicle that isn’t caused by hitting another object or vehicle. These events are sometimes called “acts of God”, such as theft or damage from falling objects and damage due to natural disasters.
Some lessors may require greater limits of liability insurance than the minimums set by the state. Leasing companies typically require $100,000 in bodily injury coverage per person, $300,000. per accident, and $50,000 in property damage liability insurance. Your lessor may also require gap insurance, or set a maximum amount deductible (e.g. $500 to $1,000) for comprehensive and collision coverage.
For a leased car, you can get gap insurance
Gap insurance covers the difference in the vehicle’s actual value and the amount owed. Your lessor might require it. It’s useful for new vehicles that are likely to depreciate quickly once they leave the dealership’s lot. It doesn’t usually make sense if you lease a second-hand car. Gap insurance often has a maximum benefit limit. This could vary depending on the policy.
The lessor may offer gap insurance at an additional monthly fee or one-time upfront fees. The cost of gap insurance purchased through an auto insurer is added to your monthly premium.
How much more expensive is it to insure a leased car?
The cost of insurance does not depend on whether the vehicle is leased, rented or owned. Leasing companies will often require a higher plan than the minimum state coverage. Insurance premiums can be higher if there are higher liability limits or collision and comprehensive damage coverage requirements.
Maximum deductible limits could also lead to higher premiums when leasing vehicles. The deductible is the amount you pay out-of-pocket before your insurance company begins to pay. Lower monthly premiums are usually associated with higher deductible plans. Your lessor may require that your deductible not exceed a certain amount. If this is the case, you might end up paying higher premiums to lease rather than purchase a car.
How to get insurance for a leased car
You agree to comply with all insurance requirements when you sign a lease. These are the steps you need to follow to provide proof of insurance to your lessor:
- Select the right car for you.
- Ask your leasing company about the minimum requirements for insurance.
- Consider whether you need additional coverage, such as gap insurance.
- Shop around and choose an auto insurance policy.
- You can purchase insurance. Your insurer will email or fax proof of insurance to you and your leasing company. This can be done over the phone, online, or at the dealership (if you have the Vehicle Identification Number for the car you are leasing).
- You can sign the lease and provide proof of insurance to the leasing company.
Subscription Services for Cars
Subscription services for cars offer an alternative to traditional car leasing. Many major car dealers now offer these services. This is how they usually work:
- Register for your first month
- Choose a car, and then choose options such as how far you can drive per month without paying extra.
- Get the car delivered to your home
- You can return your car at the end of each month or renew your subscription.
Many companies offer subscription programs, including Care (Volvo), Canvas (Ford) and Book (Cadillac). These programs have the advantage of removing the hassle of buying car insurance and managing car maintenance. They are also included in the monthly price. However, they offer flexibility with no long-term commitments.