When you lease a car, the state you live in will require you to get its minimum liability car insurance. Whoever you're leasing your car through will likely require you to have collision and comprehensive insurance as well. Lenders often require you to carry full coverage — a combination of liability, collision and comprehensive insurance — as part of your lease agreement. However, your lessor may decide what liability coverage limits you need to have beyond the state-required limits.
There is also gap insurance, which helps cover the balance due on your lease if your car is totaled. It may be included in your car payment, but if not, you should seriously consider buying it.
This article includes:
What insurance do I need for a leased car?
When you lease a car, you will need to have the required minimum limits of liability car insurance legally mandated by your state. All states except New Hampshire require drivers to carry liability insurance. Limits vary from state to state. Some states also require personal injury protection (PIP) or uninsured/underinsured motorist coverage, but it's less common. Your auto insurance provider will inform you of the minimum required limits.
Your lessor will have car insurance requirements as well. They usually want you to carry collision and comprehensive car insurance for the duration of your lease. This is done in order to protect their investment in the event of a crash or other covered damage to the leased car. Collision and comprehensive insurance cover the following:
Collision insurance: Covers damage to the leased car resulting from a collision. This can include damage from colliding with a tree or fence.
Comprehensive coverage: Covers damage resulting from non-collision events such as falling tree branches and ice, or auto theft.
It's important to know that your lessor may require higher liability limits than what your state mandates. Even if your lessor doesn't, it's a good idea to increase your liability car insurance beyond the legally-required limits. Very few states have minimum limits that can fully cover the damages and medical costs that may occur due to a serious crash. If the damages, legal or medical bills surpass your limits, you are responsible for paying the rest out of pocket. In order to protect yourself and your peace of mind, we strongly suggest raising your liability auto insurance limits to 100/300/100.
Gap insurance for a leased car
While not required by states, guaranteed asset protection, or "gap" insurance, is often a requirement in car leasing agreements. It protects you if your leased car is totaled and you still owe a balance on it. If your vehicle is totaled, your auto insurer will only provide a payout based on the car's actual cash value (ACV), or the car's value after depreciation. A car's cash value decreases each year. If you total the car and don't have gap insurance, you can wind up owing thousands of dollars out of pocket to your lessor.
How gap insurance covers leased cars:
Say you lease a new car for $30,000. A while later, you get into a car crash that totals the car, and your provider pays you out $15,000 based on the vehicle's ACV. Even if you've already paid $5,000 on the lease, you'd still have to pay your lessor $10,000. Gap insurance would cover the remaining $10,000.
How much does insurance for a leased car cost?
Lessors usually require you to have liability, collision and comprehensive insurance, which together is often known as "full coverage". Full-coverage car insurance costs $1,255 per year, on average. This breaks down to $105 a month. However, various factors can affect your final cost. Keep in mind that your lessor may want higher liability limits than what your state requires. Whether your lessor needs you to carry a higher limit or you choose to increase it yourself, this will increase your overall rate.
Your collision and comprehensive car insurance limits are usually based on the actual cash value of the car. If you lease an expensive vehicle such as a sports car, you can expect to pay a higher car insurance premium.
In regards to gap insurance, you could pay only $20 a year depending on the provider you choose. Auto dealerships also offer gap insurance, but it usually costs more, around $500 to $1,000 a year. The cost of gap insurance through a dealership may be included in your monthly car payment, or it may be required in a lump sum upfront. It's recommended that you get gap insurance if the car is brand new, as new cars depreciate quickly in their first few years.
Another rate variable is the car insurance deductibles you choose. The deductible is the amount you agree to pay on a claim before your insurer pays the rest. The higher your deductible, the lower your premium. Deductibles of $500 and $1,000 are the most common. There may be higher deductibles available to you, but your lessor may put a limit on how high it can be.
Other factors that can affect your final auto insurance rate are:
- Your age.
- Your gender.
- Where you live.
- Your driving record.
- Your insurance claim history.
How to get car insurance for a leased vehicle
You will need to get insurance before you drive the leased car off the lot. Your dealership may sell gap insurance, but there's a good chance it won't be at your best price. A good first step is to find out from the dealership what their required car insurance limits are. Next, shop around and compare quotes from multiple providers to find the best combination of cost and policy offerings. Also, ask insurers about what car insurance discounts are available to you. While your lessor may control your maximum deductible, you are free to take advantage of any discounts you're eligible for.
Compare insurance quotes for your leased car to find great rates.
Your lessor will require you to list them as an additional insured and loss payee on your auto insurance policy. This allows them to be notified of any changes made to your policy status and to receive claim payouts. Once you finalize your car insurance purchase, have your insurer send you proof of car insurance coverage for the dealership — and finish leasing your car.
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