Are you familiar with the insurance requirements for the leased car that you have?
It's possible to get behind the wheel of a brand-new vehicle with less of a financial commitment by leasing instead of buying it outright, which could result in a lower monthly payment. However, the fact that you do not own the vehicle does not absolve you of the responsibility of purchasing and maintaining adequate insurance coverage for it. In point of fact, you might discover that the requirements for insurance are becoming more stringent in terms of the minimum coverage and the deductibles. Even if you get into an accident that completely totals the car, your lease probably requires you to keep up with the maintenance and repairs, pay off the lease, and repair any major damage.
A vehicle that is leased must comply with certain insurance requirements, and drivers have a few different options to choose from.
Key Takeaways
To protect the leased vehicle, you will be required to purchase certain types of insurance, which the dealership will explain to you.
In most cases, dealers require a maximum deductible, along with a bodily injury liability insurance policy that covers $100,000 in damages, a property damage liability policy that covers $50,000, comprehensive and collision coverage, and an uninsured motorist clause.
In the event that the leased vehicle is written off completely, there may be a difference between the amount of coverage you have and the amount that is still owed on the lease.
You may have the option of purchasing gap coverage through a dealership waiver or purchasing a gap insurance policy in order to cover the difference between the current value of the car and the amount that you owe on it. This choice may be available to you.
What Kind of Auto Insurance Is Required for a Leased Vehicle?
"a brief description of insurance provided or paid for by the lessor or required of the lessee, including the types and amounts of the coverages and costs," is required by the national Consumer Leasing Act. The dealership will inform you of the types of insurance policies you are required to carry in order to protect their investment, which in this instance is the vehicle.
The requirements may vary depending on the state and the lessor, but in general, you are expected to carry the following items:
The bodily injury or death that you cause to another person is covered by bodily liability insurance.
Damage to other people's property is covered under the terms of your physical damage liability insurance policy.
Collision insurance is a type of auto insurance that pays for repairs to the vehicle in the event of a collision.
In the event of a non-collision-related incident, such as a fire, theft, or natural disaster, comprehensive insurance will cover the resulting physical damage to the insured vehicle.
You might be asked to carry higher levels of auto insurance coverage than the minimum required by your state for the leased vehicle you have.
The following is a list of sample requirements for leased vehicles that have been provided by various auto financing institutions:
| Maker |
Insurance for Legal Obligation and Personal Injury Minimum |
Requirements for Property and Liability Insurance |
Minimum Coverage for Collision and Comprehensive? |
Maximum Deductible |
| Nissan |
$100,000 |
$50,000 |
Yes |
$1,000 |
| Volvo |
$100,000/$300,000 |
$50,000 |
Yes |
$1,000 |
| Mercedes-Benz |
$100,000/$300,000 |
$50,000 |
Yes |
$2,500 |
| Subaru |
$100,000/$300,000 |
$50,000 |
Yes |
$500 |
| Lexus |
State liability requirements |
State liability requirements |
Yes |
$1,000 |
| Honda and Acura |
$100,000/$300,000 |
$50,000 |
Yes |
$1,000 |
Having said that, these are merely some examples. Because the laws of the state have an impact on the final insurance requirements, you should read the lease agreement you signed very carefully.
In the event that you leased a car, what Kinds of Additional Coverage Would You Have Access To?
When you go to a dealership to purchase, finance, or lease a vehicle, the salesperson there may present you with different financing options and coverage options, such as an extended service contract or roadside assistance. Included in the following is a list of coverages that are unique to leased vehicles:
Guaranteed auto protection covers the difference between the actual value of your car and the amount still owed on it. Certain leasing companies require you to have this coverage.
Covers wear that is above and beyond what is considered normal to avoid charges at the end of the lease, but may or may not cover excess mileage. Excess wear and use protection.
Credit life or disability insurance protects you from financial hardship in the event of your untimely death or incapacity.
The costs of your lease and interest may go up as a result of these coverages and add-ons. You have the option to decline the coverage offered by the dealer in certain circumstances and instead search for your own insurance coverage. In other instances, policies might provide coverage that is identical to that which you already possess. For instance, if you already have life insurance, you may not need an extended service contract or credit life or disability insurance. Similarly, a new car warranty may cover some of the same things as an extended service contract.
Insurance Premiums for Leased Vehicles
Because you are required to purchase a certain, and typically higher, amount of insurance, the cost of insuring a leased car will typically be higher than the cost of insuring a car that you own outright.
If your lease stipulates a maximum deductible of $500 or $1,000, you may not have much of a choice even if you want your annual policy costs to be lower. However, choosing a higher deductible will typically result in lower premiums.
When compared to a car that has been purchased outright, a leased vehicle may be regarded by some insurers as posing a greater risk.
Because the leasing company and the bank or auto financing company will likely require collision and comprehensive insurance, the cost of insurance for a leased car may be comparable to the cost of insurance for a car that was financed. On the other hand, it is possible that it does not have the same requirements concerning minimum liability or deductibles.
However, the final price will be determined by a number of factors, including the type of vehicle, the state in which you live, and your driving record.
When Purchasing a Leased Vehicle, Is Gap Insurance Necessary?
Gap insurance, which is also known as guaranteed auto protection insurance, is designed to help you make up the difference between the amount you owe on the leased car and the amount your insurance company might pay if the vehicle is totaled in the event of an accident. If the vehicle is totaled, your insurance company might pay the amount your insurance company might pay.
Because the value of new cars depreciates so rapidly, the amount that the leasing agreement states you are responsible for paying in the event that the vehicle is stolen or damaged might be higher than what your insurance company is willing to pay. There are certain conditions that won't be covered by insurance, such as having a history of accidents or having payments that are past due. This could result in a lower payout. The disparity could put you on the hook for tens or even hundreds of thousands of dollars.
The concept can be confusing because dealerships and insurance companies cover the gap in a variety of different ways, but the following are some fundamental approaches:
However, your final costs will be based on various factors, such as the car type, your state, and your driving record.
| You |
Leasing company |
Auto Insurance Company |
| You are responsible for paying any difference. |
Free of charge as part of the car's lease agreement is gap coverage. |
Coverage for coverage gaps that is offered by an insurance company. |
| Offers, as part of your lease agreement, a waiver or coverage for the difference between the amount that is owed and the value of the vehicle. |
| Concludes in advance that they will accept the settlement offered by the insurance company, effectively providing a release at no additional charge. |
More information on the two primary kinds of gap insurance that you might be offered or that you can look into is provided below.
Waivers and Coverages for Lease Gaps Offered by Leasing Companies
It's possible that you can only get the gap coverage or waiver when you first get your leased car, and that you won't be able to add it later on. There are various gap waivers available, and some of them may contribute to the payment of your deductible, while others may offer dealer credit toward the purchase of a replacement vehicle. The coverage limit could be as high as 150 percent of the new or retail value of your vehicle, or it could have limits such as waiving a loss of up to $75,000 if it is purchased separately.
However, make sure you read all of the fine print. In some instances, you may still be responsible for paying the outstanding balance, and there may be caps placed on the value of the vehicle or losses that are not covered. It is possible that you will end up paying interest on the cost of the insurance if the premiums for the gap insurance are included in the lease payment.
You might be able to avoid this situation by declining the gap insurance offered by the lessor and instead purchasing your own coverage from an insurance company.
Coverage for Insurance Gaps Provided by Companies
When purchased from a conventional insurer, gap insurance might be referred to as "loan/lease gap insurance" or "loan/lease payoff." If you want to qualify for insurance, your insurer will probably require you to carry comprehensive and collision coverages. However, your lessor most likely has the same requirement.
Your deductible will probably not be covered by the gap insurance coverage provided by your insurance company. Furthermore, some insurance companies state that the loan or lease payoff coverage will only pay a portion of the actual cash value of your vehicle in the event of a total loss. For instance, the gap insurance offered by Progressive will only pay up to 25 percent of the vehicle's current market value.
What is the typical monthly premium for lease gap insurance?
Although the price of loan/lease payoff insurance varies from insurer to insurer, according to American Family, it is relatively inexpensive and only "a few dollars."
According to the consumer advocacy organisation United Policyholders, the one-time cost of gap coverage from a dealership could be anywhere between $500 and $700; however, this expense is typically rolled into your lease along with interest. The organisation believes that purchasing this coverage from an insurance company will typically result in a lower cost overall.
It's possible that the terms and conditions of your gap insurance prevent you from using your vehicle for work-related purposes. Be sure to read the fine print of your auto insurance policy so that you don't end up breaking any of the terms.
How to Obtain Auto Insurance for a Vehicle That You Are Renting
Ask about the types of coverage that are required versus those that are optional, as well as what you can buy from the dealership versus what you can buy on your own, if you have not yet signed your lease agreement. To the extent that it is possible, it is in your best interest to shop around to compare the minimum requirements for a leased vehicle and the prices of gap insurance.
It is likely that the terms of your lease agreement will require you to name the financial institution that is doing the leasing as the loss payee and additional insured.
If you have already purchased gap coverage from the dealership, you may be able to return it for a refund if you replace it with loan/lease gap coverage offered by a traditional insurer. This is the case even if you have already cancelled the coverage. Before cancelling the gap coverage that is already in place, you need to make certain that you have your new insurance in place and that you fully comprehend any differences that may exist between the two policies.
