What Kind of Insurance do You Need for a Leased Car?

car insurance for leased vehicles

Leasing a car is ideal for people who want the newest body style and safety features without committing to a sizeable monthly financing payment. As new features roll out (typically every two or three years), the lease term ends, and a new car awaits. 

Lower maintenance costs, smaller down payments, and lower monthly payments make leasing an attractive option for budget-conscious drivers who don’t plan to drive their leased car more than 12,000 miles each year. 

You don’t technically own your leased vehicle, but you must follow specific rules about your car insurance coverage. Before you drive away in your new car, you’ll need to have the right types and amounts of insurance. 

Common State Requirements

If you live anywhere in the United States (except New Hampshire), you’ll need to meet your state’s minimum liability insurance amount. Bodily injury coverage per person, bodily injury coverage per accident, and property damage coverage per accident vary widely from one state to the next. Your state’s insurance requirements are the same whether you own, lease, or finance your vehicle. 

Liability insurance covers damage you cause to other people or their property while driving your vehicle. Your liability policy does not cover damage to your vehicle, nor does it cover your medical costs related to an accident. 

About half of the states require uninsured and underinsured motorist coverage. This coverage protects you from having to pay the bill for an accident caused by another driver, even if they don’t have enough (or any) insurance coverage. 

Only 20% of states require personal injury protection (PIP) or medical payments coverage. Personal injury protection covers lost wages and medical expenses for you and your passengers after an accident, regardless of fault. Medical payments coverage handles accident-related medical bills for you and your passengers. Whether you have PIP or medical payments coverage available depends on your state of residence

Common Lessor Requirements

Lessors typically require drivers of leased vehicles to carry full coverage insurance, which includes collision coverage and comprehensive insurance. They may also require bodily injury liability limits exceeding your state’s minimum requirements. Expect to see higher property damage liability limit requirements with a lease, as well. 

Gap Insurance for a Leased Car

States don’t require Guaranteed Asset Protection (GAP) insurance. Your lessor may strongly recommend this coverage or even require it in a Gap clause in the lease agreement. 

Your dealership may roll the cost of Gap insurance into your lease, so it’s crucial to read the contract to determine if you are paying for a “gap waiver” through your dealership. 

But you don’t have to buy Gap insurance coverage at your dealership. You may be able to get a better rate on Gap insurance through your insurance company

Is Car Insurance Included in a Lease?

No. Your lease agreement won’t include the insurance coverage you need to protect your investment and meet your lessor and state requirements. If you choose to lease a car, expect to make your regular lease payment in addition to paying the insurance bill. 

Optional coverage, like Gap insurance, may be included in your lease paperwork, depending on whether your dealership purchases a master policy to cover all of its leases.

If you’ve recently leased a car and want to save on car insurance, just enter your ZIP code below and compare rates from dozens of insurance companies for free.

Is Insuring a Leased Car More Expensive?

Not necessarily. The fact that you leased a car doesn’t automatically increase your insurance rates. You may pay the same rates for a brand new financed car. 

If you lease a car, you must follow the lessor’s guidelines for the amounts and types of insurance you purchase. These amounts exceed your state’s minimum requirements for liability insurance. 

Meeting the lessor’s insurance requirements could mean you’ll pay more for auto insurance than you would if you owned the car outright and could choose lower liability limits or omit comprehensive and collision insurance coverage altogether. 

How to Get Cheap Insurance for a Leased Car

The best way to get the lowest possible insurance rates for your leased car is to shop around and compare car insurance. Every insurance company uses its own algorithms to calculate premiums. You may see significant premium differences from one company to the next, even for the same driver, vehicle, and coverage types. 

Also, be sure to check your lease paperwork for a dealership “Gap waiver” that could add to your monthly lease payment. If you can eliminate Gap coverage through the dealership, you may be able to get the same coverage for less as a rider on your auto insurance policy. 

Factors That Influence Your Leased Vehicle’s Insurance Rates

While it’s easy to get a general idea of how much you may pay for auto insurance, it’s smart to get specific quotes for your leased car and your demographics. There are several key factors all car insurance companies use to calculate how much you’ll be asked to pay, including things like:

Motor Vehicle Report

Insurance companies use your Motor Vehicle Report (MVR), your geographical location, your age, and your car’s Vehicle Identification Number (VIN) to calculate your insurance rates. So, if you have a history of speeding tickets or other moving violations, or if you’ve been in an at-fault accident in the past few years, your MVR will reflect that activity and change the amount you’ll be asked to pay each month. 

Deductible

Choosing higher deductibles can help you reduce insurance premiums. Of course, if there’s an accident or incident that causes damage to your vehicle, you may have to pay the deductible to get the damage fixed. Check with your lessor to find out if they impose a maximum deductible. 

Credit

Some insurance companies use an insurance-based credit score to help them determine the likelihood that you’ll file a car insurance claim. While there may not be much you can do to change your credit score in the short term, it’s important to know that insurance companies use this information. However, in California, Hawaii, Massachusetts, and Michigan, the use of credit information is limited or prohibited when calculating insurance premiums. 

Vehicle Type

Cars with a high Manufacturer Suggested Retail Price (MSRP) cost more to insure. When they require repairs, parts and labor are more expensive, which drives up insurance rates for certain vehicles. If you are shopping for a high-end or luxury vehicle lease, avoid costly surprises by getting quotes from several insurance companies before signing lease paperwork. 

Demographics

Your age, gender, marital status, and location affect your car insurance rates. Young drivers tend to pay more for car insurance than more experienced drivers, even without tickets or accidents

In general, men may pay more for car insurance than women. Drivers living in a city with long commutes and heavy traffic typically pay more for insurance than those in rural areas. 

While there’s not much you can do about many of these factors, knowing that younger drivers tend to pay higher insurance rates may help you decide which leased vehicle fits better into your budget. 

How Gap Insurance Works for a Leased Car

Gap insurance, or loan/lease coverage, is an optional type of car insurance covering the “gap” between your car’s actual cash value (ACV) and the total amount you owe on the lease or auto loan. 

The leasing company may require Gap insurance as part of your policy. To get Gap insurance, you must be the original leaseholder or be named on the new car loan. 

Here’s how a Gap insurance claim works: 

Your brand-new car has an MSRP of $46,000. After driving it for six months, you owe $43,500 on the three-year lease. You run a stop sign, causing an accident. Your insurance company decides your vehicle is a total loss. They assign an ACV to your vehicle of $38,000, which is the amount they’ll pay the lease company. 

Since you owe $6,500 more than insurance covers, your Gap insurance policy covers that part of your debt to the lease company. Without Gap coverage, you would have to pay $6,500 out-of-pocket to settle up with the lease company. 

Depending on your lease company’s car insurance requirements, Gap insurance may be optional. To figure out whether you need this coverage, think about whether you could (or would be willing to) cover the potentially significant difference between your vehicle’s ACV and the amount you owe on the lease in the event of an accident. 

FAQs

Will leasing a car affect the cost of my insurance?

Yes, in some ways. Your state has laws about the amount of liability coverage you must carry, but your lease company may require more than the state minimum, plus collision and comprehensive coverage. If you own your car outright, you can choose whether you want to purchase more than your state’s minimum requirements. 

Leasing a car doesn’t mean you’ll pay more for the types and amounts of insurance you buy on the same car with financing or one-time cash payment. But, with a lease or loan, you must meet your lessor or lender’s minimum requirements, which could translate to a higher insurance bill. 

Do you have to have full coverage auto insurance to lease a car?

Yes. Lessors require specific minimum amounts of liability coverage plus collision and comprehensive coverage. They may also require Gap insurance, which you may be able to get through your dealership or as a rider on your auto insurance policy. To put it simply, since you don’t own the car, your lessor will want to protect their property from damage or theft, so they may require more coverage than you would normally buy.

Either way, you’ll have to show proof of insurance at the dealership before they let you drive away in your new car. 

Do you need Gap insurance for a leased car?

Maybe. Some lessors require Gap insurance, and some dealerships add it to the lease price automatically. Ask your salesperson for the complete lease paperwork and look for the gap waiver section. 

Many people who lease cars choose to add Gap insurance to protect their financial stake in the lease. Without it, you’ll be legally liable for paying off the lease after an accident resulting in a total loss. The insurance company pays depreciated value of the car, also known as the ACV, but this amount may not cover your total outstanding lease debt. 

What’s the difference between leasing and financing?

When you lease a vehicle, you make a downpayment and monthly payment that may be much less than your monthly car payment if you were to borrow money to purchase the car. A lease is usually 24, 36, or 48 months. 

With a lease, you make monthly payments on the difference between the MSRP and the estimated residual value at the end of the lease. You may pay $273 per month plus a $2,000 down payment for a 36-month lease on a 2021 Honda CR-V with 12,000 miles of driving allowed each year. 

If you drive a leased car more than allowed by the lease (usually 12,000 miles per year), you’ll pay a per-mile penalty at the end of the lease. You’ll also have to pay for damage to the vehicle that falls outside of “normal wear-and-tear.” 

With a car loan, you make payments on the total purchase price of the vehicle. If you choose to finance the same vehicle with a purchase price of $26,525 at 4% interest with a $2,000 down payment and a 36-month term, your monthly payments would be $724 per month. 

However, at the end of your auto financing term, you own the car. After making your final payment, the finance company signs over the title, and the vehicle is yours to keep, sell, or trade-in.

When you finance a vehicle, you can drive as many miles as you choose, and you don’t have to worry about being penalized for door dings and bumper scrapes. 

If you lease your vehicle, you’ll have to meet your state’s minimum liability coverage requirements, but you’ll also have to satisfy your lease company’s insurance demands. To get the best possible rates from a trustworthy insurance company, take a bit of time to shop around. Get quotes for your leased vehicle and find out which car insurance discounts you may be eligible for at Compare.com.

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