Understanding Car Insurance for Leased Vehicles

When it comes to driving, nearly everyone needs car insurance, whether they are financing or leasing a vehicle. However, leasing companies often have stricter insurance requirements than lenders, necessitating more types of coverage and higher policy limits. If you’re leasing a vehicle, it’s crucial to understand these requirements to ensure you’re adequately protected. Here’s what you need to know about insuring a leased car.

Insurance Requirements for a Leased Car

The types and amounts of coverage you need depend partly on where you live. Drivers must meet their state’s minimum insurance requirements, plus any additional requirements the leasing company has. Let’s break down the common coverages you may need.

State Requirements

Auto insurance requirements vary by state. Nearly every state requires drivers to maintain liability coverage, and many states have additional requirements. Here are some common coverages you may need depending on where you live:

• Liability: Covers injuries and property damage you cause to someone else or their property. State minimum liability requirements are generally low and may not provide adequate protection if you’re in a serious accident. Leasing companies often require drivers to maintain higher liability limits of $100,000 of bodily injury liability per person, $300,000 of bodily injury liability per accident, and $50,000 of property damage liability per accident.
• Uninsured/underinsured motorist: Covers injuries that you and your passengers sustain and damage to your vehicle if an uninsured or underinsured driver hits you. Uninsured motorist coverage also kicks in if you’re the victim of a hit and run or someone without adequate insurance coverage hits you as a pedestrian.
• Personal injury protection (PIP)/medical payments (MedPay): Pays for your and your passengers’ accident-related injuries, no matter who is at fault.

Leasing Company Requirements

Since the leasing company, not the driver, maintains ownership of a leased car, the leasing company usually requires drivers to purchase additional coverage to protect its financial interest in the vehicle, including:

• Collision: Covers accident-related damage to the leased vehicle when you’re at fault in an accident.
• Comprehensive: Covers theft and non-accident-related damage to a leased car caused by fires, natural disasters, animals, and more.
• Guaranteed asset protection (GAP): Reimburses the leasing company for the difference between your remaining lease balance and the market value of your vehicle if the insurance company declares it a total loss. Leasing companies often include the price of GAP coverage in your monthly lease payment.

Insurance Requirements for a Purchased Car

Whether you lease or buy your car, you must maintain at least the state’s minimum coverage requirements. Like leasing companies, lenders typically require drivers to carry comprehensive and collision coverage if they’re financing the purchase of a new or used vehicle. However, they don’t typically require liability limits above the state minimum or gap coverage, even if your car is brand new.

Comprehensive and collision are optional if you pay cash for your vehicle or pay off your loan. But they may be worth having if you can’t afford to pay for repairs out of pocket or drive a car that maintains its value. Without these coverages, you’ll be on the hook for covering repairs from at-fault accidents and damage not related to an accident.

Cost of Insuring a Leased Car

Car insurance costs vary based on multiple factors, including the type of car you drive, how much you drive, your age, driving history, where you live, and more. Insurance policies generally cost more for expensive vehicles, drivers who put more miles on their cars, less-experienced drivers, and people with speeding tickets and other violations on their record. Rates vary by location and tend to be higher in areas with higher rates of accidents, theft, vandalism, and weather-related damage.

Pricing is also affected by the types of coverage you choose, your policy limits, and the deductible amounts you select. A policy typically costs more when you opt for more coverage, higher policy limits, and lower deductibles, and less when you choose less coverage, lower policy limits, and higher deductibles.

Is It More Expensive to Insure a Leased Car?

Many factors affect the price of an auto insurance policy, but whether you lease or buy a vehicle isn’t one of them. However, because leasing companies typically require drivers to buy more coverage and have higher policy limits, you’ll generally pay more to insure a leased vehicle.

Good Credit Can Help Lower Insurance Costs

Credit-based insurance scores help insurers determine the likelihood that a policyholder will file a claim. Most states allow insurers to consider your credit history when determining the price of a policy. A good credit score may help you get a lower rate in states where insurers can include credit-based insurance scores in their rating criteria.

Checking your credit score for free lets you know where your credit stands before applying for coverage. Improving your credit (if necessary) before purchasing a policy may help you qualify for a lower rate.

How to Get Car Insurance for a Leased Car

Purchasing car insurance for a leased vehicle is similar to purchasing coverage for a car you’re buying. But, lessors generally have a few additional conditions compared to lenders. Follow these steps to get coverage that satisfies your leasing requirements:

1. Talk to the leasing company: Find out what types of coverage and policy limits they require.
2. Decide on coverage: Select the types of coverage you want to buy and your policy limits. You can opt for additional coverage and higher limits than the lessor requires—but not less.
3. Get multiple quotes: A car insurance comparison service can save you time and help you find the best deal.
4. Choose a policy: Select the one that best fits your needs and budget.
5. Include the lessor: Add the leasing company as an additional insured and loss payee on your policy.
6. Provide proof of coverage: You must show the lessor that you have adequate coverage when you sign the lease agreement.

The Bottom Line

Purchasing auto insurance for a leased vehicle isn’t much different from purchasing coverage for a car you’re financing. You must maintain enough coverage to meet your state’s minimum insurance requirements and the conditions of the leasing company. You can choose to buy additional coverage for greater protection, but you can’t have less.

At O1ne Mortgage, we understand the complexities of insuring a leased vehicle and are here to help you navigate the process. For any mortgage service needs, feel free to call us at 213-732-3074. Our team of experts is ready to assist you in finding the best coverage that meets your needs and budget. Don’t hesitate to reach out to us today!