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Is Insurance More Expensive for Leased Cars?

6 min read

Before you decide whether to buy a new car or lease one from a dealership, take the time to learn how your insurance may be affected. Insurance for a leased car must meet standards specified in the lease contract, often resulting in higher premiums than a car owner may choose to pay. This guide to car leasing with insurance can help you better understand what factors go into the cost of insuring leased cars.

How Leasing a Car Works

When you need a new vehicle, deciding between leasing vs. buying a car is critical. We’ll address the pros and cons of leasing a vehicle, then look at insurance for a leased car.

Leasing a vehicle rather than buying it can be an effective method for saving money on the cost of a brand-new car. Like a rental, a car lease lets the borrower drive a new car for a specified period. Like a car purchase, the borrower must make a downpayment, followed by monthly payments. Most vehicle leases run for about three years. At the end of your lease term, you may have an option in your contract to buy the car, extend the lease, or return the vehicle.

Unlike buying a car, a leased vehicle typically has lower monthly payments than financing the purchase of the vehicle. A lower payment is advantageous if you want to drive a car that is otherwise out of your price range. With car leasing, many drivers are able to consistently drive newer cars. Additionally, a leased vehicle remains under warranty the entire time you drive it, whereas a purchased car’s maintenance and upkeep becomes your responsibility when the warranty is up. Because the vehicle ownership remains with the dealership, the insurance on a leased car must meet the dealer’s standards.

Financial Considerations in Car Leasing

Leasing a car comes with some drawbacks. When the vehicle lease is up, you return the car to the dealership and do not see a return on the payments you’ve made. If you buy a car, you may be able to sell it at some point, recouping some of your investment. Without vehicle ownership, you cannot recover any money you pay toward the lease.

Additionally, many lease agreements place annual mileage limits on the leased vehicles. You can be charged for every mile driven over the allotted distance if you exceed these limits.

Financially, the decision between leasing vs. buying a car comes from convenience vs. equity. Drivers who lease one car after another may benefit from lower monthly payments and reduced maintenance costs. Over the long term, you could spend more on constant monthly lease payments than you would by paying off a car purchase. You should also budget for higher insurance for the leased car.

Car Insurance Requirements for a Leased Car

The dealership will require insurance for the leased car to protect their asset. The lender may require that you have comprehensive coverage to cover loss or damage to your vehicle caused by theft, fire, earthquake, and other non-collision events. Many drivers pay more when insuring leased cars than when insuring vehicles they own. It’s not that a company charges more for the same insurance for a leased car as for a purchased one. Instead, many car owners drive with minimum coverage to reduce their monthly premium.

However, when you lease a car, the dealership retains ownership. The dealership won’t risk the car’s value, so they also require collision coverage. Expect them to set higher liability coverage requirements for bodily injury and property damage than you might choose for yourself.

Legal Insurance Requirements

Whether leasing a car or driving one you own, the law requires that you carry car insurance. Although it varies by state, there are minimum coverage standards required for car insurance. Minimum coverage required by law usually includes a certain amount of liability coverage. This coverage helps pay for damages to another person or their property if you cause a car accident.

Suppose your insurance coverage only partially covers your liability. In that case, the injured party can sue the driver and the vehicle owner for damages. For this reason, dealerships often require insurance for leased cars, including bodily injury liability limits of $100,000 per person and $300,000 per accident, and a property damage liability limit of $50,000 per accident. They do not intend to be on the hook for your accident.

Differences Between Car and Leasing Insurance

The insurance for a leased car differs from insuring a vehicle you own due to the car’s ownership. The car owner determines their risk tolerance and the vehicle’s insurance coverage standards. While you might be willing to roll the dice with minimal coverage on a car that you own, the dealership that owns the vehicle you lease is not.

Different Factors That Affect Car Leasing Insurance

Dealerships that lease their vehicles retain ownership. That puts them in the position to require more complete coverage for the insurance for a leased car. The better coverage naturally raises your monthly premium. Insurance on a leased car typically includes the following coverage:

  • Comprehensive
  • Collision
  • Bodily Injury Liability limits of $100,000 per person
  • Bodily Injury Liability limits of $300,000 per accident
  • Property Damage liability limits of $50,000 per accident

Further, the lender may require lower deductibles than you might choose yourself. This, too, can result in higher premiums.

Insurance on Leased Cars FAQs

Is Insurance Higher When Leasing a Car?

Dealerships require a great level of protection for insurance on a leased car. More insurance protection can cause higher monthly premiums than policies offering less protection. Since the monthly lease payments are typically lower than financing payments on a vehicle purchase, the savings offset the premiums for the more comprehensive coverage.

How Much is Insurance on a Leased Car?

The cost of insurance for a leased car, like any vehicle, is based on a series of factors. Chief among them are:

  • The year, make, and model of the car
  • The policy coverage
  • The driver’s safety record

The best way to learn how much you’ll spend insuring a leased car is to get a free quote for your leased vehicle.

Is it better to lease or finance a car?

Whether leasing vs. buying a car is better depends on your needs and circumstances. Many find it less expensive to lease a vehicle in the short term. The choice to lease is due to the smaller downpayment, lower monthly payments, and lower maintenance costs for a leased car compared to purchasing. However, some prefer retaining equity in their vehicle and the right to drive as much as they like without incurring mileage penalties that can occur with a car lease.

Does leasing a car build your credit?

Leasing a car or financing the purchase of a vehicle and making your payments on time builds your credit. Making timely payments on your financial obligations is the key to building and maintaining a solid credit score.

What is lease protection insurance?

Lease protection insurance protects the lender from financial loss if the lessee cannot make their payments due to specific circumstances. If you lease a car and then cannot make your payments due to involuntary job loss, death, disability, or the loss of the vehicle, the lease protection insurance pays off the lease.

Wawanesa Auto Insurance

Whether you own your car or need insurance for a leased car, trust Wawanesa. We know there’s more to car insurance than cute spokesmodels and competitive rates. Our friendly agents take the time to answer your questions in full so you can make the best decisions for your family’s protection. Call us, and let’s see how we can save you money. Or check online to see if you’re eligible for our car insurance discounts.

Advertisement: Auto insurance discounts that deliver. Click to see available discounts.

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The above content is for informational purposes only and is not a direct representation of coverages offered by Wawanesa or its policies. The information does not refer to any specific contract of insurance and does not modify any definitions, provisions, exclusions or limitations expressly stated in any contracts of insurance. All references within the above content are illustrative and may not apply to your situation. The terms and conditions of the actual insurance policy or policies involved in a claim are determinative as to whether an accident or other loss is covered. To understand the coverage under your current policy, please log into the account management platform to review your policy or contact an agent directly.

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