What Kind of Insurance Do You Need for a Leased Car?
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Leasing a car is ideal for people who want the newest body style and safety features without committing to a sizable monthly payment. As new features roll out (typically every two or three years), the lease term ends, and a new car awaits.
There are many benefits, including lower maintenance costs, smaller down payments, and more affordable monthly payments. These advantages make leasing an attractive option for budget-conscious drivers who don’t plan to drive their cars more than 12,000 miles each year.
Since you’ll never technically own your leased vehicle, you must follow specific rules regarding car insurance coverage. Before you drive away in your new car, you’ll need suitable types and amounts of insurance.
- When you lease a vehicle, your lessor will require you to have certain types and amounts of coverage to protect the car.
- Leasing car insurance costs the same as you would pay to insure your own vehicle.
- You can save money on your insurance for a leased vehicle by choosing a more economical car, improving your credit rating, and shopping around for car insurance.
Car Insurance Requirements For a Leased Vehicle
Unless you live in New Hampshire or Virginia, which allows you to opt-out of car insurance, any vehicle you drive will need to meet your state’s minimum car insurance requirements. In addition to outlining bodily injury and property damage liability requirements, some states require additional coverage like uninsured and underinsured motorist protection. These minimum requirements vary by state.
But minimum coverage requirements are just a starting point. When you sign a lease contract, the lessor will specify the type of coverage and minimum limits you need on the vehicle. Some lessors may require higher limits than those required by your state, and you might find that the lease agreement requires additional types of coverage that your state doesn’t require, too.
It’s common for lessors to require the following types of coverage:
- Collision Coverage: A collision policy helps cover repair or replacement costs for your vehicle that result from any collision, such as an accident with another car or a fixed object.
- Comprehensive Coverage: Comprehensive insurance helps to cover expenses resulting from anything that isn’t a collision. These events might include theft, falling trees, natural disasters, fire, and vandalism.
- Bodily Injury Liability Coverage: Bodily injury liability insurance pays for expenses, like medical bills and ER bills, that anyone else receive after you are at fault for an accident. It’s common for lessors to require you to carry at least $100,000 in bodily injury liability coverage per person and $300,000 per accident, which is often higher than the minimums many states require.
- Property Damage Liability Coverage: Property damage liability coverage helps pay for any physical damage you cause when you are at fault for an accident. This damage includes vehicle repairs, legal fees, and damage to houses or businesses. Lessors often require you to carry at least $50,000 in property damage liability, which is more than many states require.
Your lessor may also set a maximum deductible for your comprehensive coverage. A higher deductible will lower your monthly payments. However, you need to make sure you can afford the higher deductible. That’s because your insurance coverage for a claim will only kick in once you pay it.
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Reasons to Choose Full Coverage Car Insurance for a Lease
It might be tempting only to take out the minimum amount of leasing car insurance the lessor requires. Still, in the case of a lease, insurance helps to protect you and the lessor. When you carefully read your lease terms, you will see that you must return the leased vehicle in its original condition. Otherwise, you could face hefty fines.
A quality car insurance policy can help you to do this. If you are in an accident or the vehicle sustains damage while in your care, your car insurance will often cover these costs. Though keep in mind it won’t fix all the dings on a leased car before you turn it in. Damages would have to be attributed to a specific incident on a specific date. Should the vehicle sustain severe damage, you will often find that the cost of your deductible is far less than the alternatives.
The cost of repairing that damage yourself, or the fee you would pay if you returned the vehicle damaged at the end of your lease, will be far more. Insurance can be a wise investment against unexpected damage.
Is Car Insurance For a Leased Car More Expensive?
When you purchase car insurance for a leased vehicle, you will pay the same rates you would pay when buying that same policy if you owned the car. But suppose you need more coverage, higher policy limits, or are buying insurance for a more valuable leased vehicle than the one you previously drove. In that case, you will notice that your policy is more expensive. And if the lessor requires you to have a deductible under a certain amount, you will pay more per month for your insurance.
Keep in mind that other factors affect your insurance premiums, too. Where you live, how far you commute to work, your driving history, and your credit rating will all impact our premiums.
Is Gap Insurance Needed When You Lease a Vehicle?
Your lease agreement for a brand-new car might specify that you must purchase gap insurance.
Gap insurance helps cover the difference between your vehicle’s actual value and the amount owed on its purchase price if the car is stolen or totaled. For example, if you lease a $45,000 car and total it after just a few months, the car’s value has depreciated. Your insurance company might calculate the value to be $40,000, which is the maximum they will pay to replace it. Gap insurance covers the $5,000 difference, ensuring the lessor receives payment for the total initial value of the car.
You may be able to purchase gap insurance directly through the lessor. Alternatively, you may get a better deal by purchasing it through your car insurance company and adding it to your policy.
How to Lower Your Auto Insurance For a Leased Vehicle
When you lease a vehicle, you need to budget for the monthly lease fee and the cost of your car insurance. Depending on the coverage that the lessor requires you to carry, car insurance can quickly add up. Fortunately, there are several ways that you can lower the cost of your auto insurance for a leased vehicle.
Carefully Choose Your Vehicles
The insurance cost for leased vehicles largely depends on the type and value of the vehicle you choose. While it can be exciting to lease a brand-new luxury car, choosing a more economical option can save you money on insurance.
Rather than leasing a brand-new vehicle, consider a used car for additional savings. The lease price will be lower and will cost less to insure since its value has already depreciated. You are much less likely to need gap insurance when leasing a used car, too, which can amount to additional savings.
Consider Different Lessors
Just as you plan to shop around for auto insurance, take the time to shop around for a leasing company, too. Different lessors have varying lease terms and insurance requirements. You may be able to not only find a better deal on a vehicle, but you may find a lessor with more flexible car insurance requirements that can help you to save money.
Improve Your Credit Rating
If you have a low credit score, work to bring it up before you lease a car. A higher credit score will increase your chances of being approved to lease a vehicle and may earn you more favorable lease terms. You may need to pay a larger down payment if you have a low credit score.
Your credit score also affects your car insurance rates. Car insurance providers consider drivers with lower credit scores a risk and charge higher premiums.
Don’t have great credit? Then focus on ways to improve your credit rating. Set up automatic payments on your accounts to ensure that you make all of your payments on time. You should also use as little of your available credit as possible, improving your debt-to-income ratio.
Comparison Shop for Car Insurance
Once you’ve determined which vehicle you want to lease, take the time to shop around for car insurance. Get quotes from multiple insurance providers and see which provider offers you the coverage you need at the best price.
Compare.com makes it easy to shop around. Simply fill out a single quote request form, which takes about five minutes. Then, we’ll look at up to 65 insurance company quotes and present you with the best deals based on your location, state, and coverage needs. Compare.com users save an average of $720 per year on their car insurance.
As you shop around, be sure to look for discounts that further lower your car insurance cost. Typically if you already have a homeowner’s or renter’s insurance policy with a company, adding on a car insurance policy allows you to bundle and save. Some insurance companies offer good driver discounts or will give you a discount if you take a driving safety class. Many companies also offer paperless billing, automatic bill pay, and multi-vehicle discounts.
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Do you automatically have insurance if you lease a car?
No, your leased vehicle will not be automatically insured. As a lease condition, you must buy insurance to cover it. You can choose the car insurance company and preferred policy if you carry the minimum coverage required under your lease.
Does your insurance go up when you lease a car?
Many factors impact the cost of the insurance on a lease vehicle, including its make and model, value, type of coverage you choose, your age, your driving history, and where you live. Suppose you are leasing a more expensive car than your previous vehicle. In that case, the cost to insure that leased vehicle might be greater than the cost to cover the car you previously drove.
What are the requirements for insurance on a leased car?
Different lessors will have specific insurance requirements for their leased vehicles, which can vary. In most cases, you will be required to carry comprehensive and collision coverage on your car. Some lessors require that you have certain liability coverage limits, which may be higher than the minimum liability limits required by your state.
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