Many people who lease a car ignore how much insurance they have to buy, or how much it will cost. Learn why that can be a problem. And find out how to avoid being blindsided by high insurance rates when you go to sign a lease.
Americans leased nearly 4.5 million vehicles in 2014. A figure that accounted for about 27 percent of all car sales during that 12-month period. That number’s likely to be even higher as 2015 comes to a close if recent trends are any indication.
According to Edmunds.com, the number of car shoppers more interested in leasing than buying has risen sharply. That number has increased 41 percent over the last five years. There’s little evidence to suggest that rate is going to slow down anytime soon.
It’s easy to see why so many drivers are giving the cold shoulder to buying cars in favor of leasing. After all, the latter allows them to upgrade to the “latest and greatest” every few years. It enables them to slide behind the wheel of BMW or a Lexus even when they’ve got a Kia budget.
The promise of driving a luxury car turn the would-be car buyers away from traditional financing and toward leasing. The costs associated with leasing a cars aren’t always obvious. This is especially true when the price of auto insurance is factored into the calculations.
Price isn’t the only aspect of auto insurance that you should keep in mind when you lease a car. Here are some of the things you’ll want to consider if you find yourself in that situation.
You’re probably already aware that purchasing collision and comprehensive insurance for your new set of wheels isn’t required. When you're leasing a car you don’t own, the leasing company will make you carry collision and comprehensive coverage.
The lease agreement can require you to buy insurance they think is needed to properly protect their investment.
That’s going to mean purchasing a certain amount of both collision and comprehensive coverage. Collision covers any damage caused by a collision with another car or property. Comprehensive covers damages caused by fire, theft or any weather related event like hail.
Many lease companies, dealers, and banks place limits on the deductibles you can assign to these forms of coverage. That typically mean deductibles of $500 and $1,000 being the most likely options. Connect with multiple companies to compare quotes on comprehensive and collision insurance coverage.
Most states require drivers to purchase a minimum amount of liability coverage. Leasing companies tend to require their customers to obtain amounts that go far beyond state minimums.
Some states only require vehicle owners to have $5,000 worth of property damage liability coverage and $12,500 of bodily injury liability coverage. This pays out the coverage amount to cover the victim’s loss.
The company or financial institution backing your lease will likely will require quite a bit more than that. Most figure to be $50,000 of property damage liability and $100,000 of bodily injury liability.
These limits benefit the leasing company and the driver to protect both parties in the event of an accident. The driver is protected by higher limits to avoid exceeding coverage amounts. Leasing companies are protecting their investment to avoid disputing payouts exceeding minimal coverage amounts.
One final form of auto insurance you’ll probably have to purchase as part of your lease agreement is “GAP” insurance. GAP stands for “Guaranteed Auto Protection."
This coverage protects both you and the leasing company if you’re involved in an accident and the car is totaled. When a car is totaled your insurance company will pay out the depreciated value of the car.
GAP coverage will cover the difference between the insurance company payout and the remaining balance of your lease agreement.
GAP coverage is always recommended when leasing a brand new car. Most new cars depreciate at a faster rate in the first couple years of driving. With most leases being 3-5 years, you will be driving a car rapidly depreciating throughout the lease.
The good news here is that although most lease agreements require GAP insurance. It isn’t unusual for the needed amount to be included in and covered by the resulting car payments.
There are certain lease agreements where you won’t have to go out and actually buy a GAP policy. Read the fine print of any lease agreement or contract to see if GAP coverage is included in your payments.
Many people who lease cars quickly discover the car of their dreams isn’t quite as affordable as they first believed. The increase in their insurance rates can be large and sometimes more than expected.
Many drivers interested in leasing tend to gravitate toward vehicles that are more expensive than the vehicles they could buy. People in this situation set their budget at $300 or $400 a month and think primarily about the cost of lease. The cost of insurance either is ignored or underestimated. This results in a rather nasty case of sticker shock for a good number of lessors in any given year.
Below are a few specific pieces of advice related to obtaining insurance for a leased vehicle.
After you know the added cost of leasing a car, ask your insurance agent what additional costs will be involved. They'll tell you approximately what you’ll pay to insure a certain make and model.
They should be able to tell you approximately what you’ll have to pay to insure a particular make and model.
If insurance rates for that BMW are a lot higher than expected, consider choosing another vehicle. One with more affordable insurance premiums. Don’t wait till the sticker shock of car payments and insurance cost sets in.
All cars are not created equal when it comes to insurance.
Consider a vehicle that isn’t worth a whole lot and that’s fairly cheap to repair. These vehicles will have more affordable insurance premiums than one that has a larger price tag.
Don’t assume the insurance premium for a $50,000 luxury sports car will cost the same as your old $20,000 sedan.
The leasing company may try to sell you some of the kinds of insurance that have been discussed so far.
It may want to take them up on their offer just to get the deal done. But it’s possible doing so won’t be in your best interests. Insurance sold by leasing companies is often marked up a lot. You could find better rates elsewhere.
Do some research and talk with a few insurance companies about your situation before you make a decision. Make sure you compare car insurance quotes from multiple companies to find the best rates for your lease.
A: It’s possible you’ll pay more to insure a leased car than you would to insure a purchased car. This is because leasing companies often require you to buy more insurance you would had you purchased a car.
A: It’s possible the leasing company will roll the cost of GAP insurance into your payments. You’re probably going to have to purchase the other forms of coverage mentioned above, like collision, comprehensive, and liability.
A: The leasing company financing your new set of wheels is its owner. They want to protect their investment from damage, destruction, or theft as much as possible. That's why they make lesees (people leasing cars) carry sufficient amounts of liability, GAP, comprehensive, and collision insurance.
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