Before you decide whether to buy a new car or lease a car from a dealership, take the time to learn how your insurance may be affected. Depending on several factors, car insurance for a leased car may look more expensive than insurance for a car that you own. This guide to leased car insurance can help you better understand what factors go into the cost of leased car insurance.
How Leasing a Car Works
Many people choose to buy a car instead of leasing. Leasing a vehicle rather than buying it, however, can be an effective method for saving money on the cost of a brand-new one. Like any other lease, a car lease works by a dealership offering a new car to a driver for a set payment each month. Much like a regular car purchase, you will likely have to put a down payment on the lease. At the end of your lease term, you may have an option in your contract to buy the car, extend the lease or look for a new lease vehicle.
Unlike buying a car, a leased vehicle typically has lower monthly payments than financing the purchase of the vehicle. This can be 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 will remain under warranty for the entire time you drive it, whereas a purchased car’s maintenance and upkeep becomes your responsibility when the warranty is up.
The drawbacks of leasing a car, however, may affect whether leasing is right for you. When a vehicle lease is up, you give the car back to the dealership and do not see a return on the payments you have made. If you buy a car, especially if it is known for retaining value, you may be able to recoup some of the expenses of driving it. With no ownership of the car, you cannot use the money you have paid in the lease to lease or purchase a new car, such as trading in a car you own. Many lease agreements place annual mileage limits on the leased vehicles. If you drive a lot, you may be charged mileage for any miles driven over the allotted amount. Drivers who lease one car after another may benefit from lower monthly payments. Over the long term, however, you may end up spending more on constant monthly lease payments than you would on a set amount of payments to buy a car.
Car Insurance Requirements for a Leased Car
Car insurance for leased cars is slightly different than insurance for a car that you own. Even though you are not the owner of the leased vehicle, you are still required to buy an auto insurance policy for the car. As a car owner, you may choose a policy with only the minimum coverage for your state. A leased car, however, will likely need a more comprehensive insurance policy to meet legal requirements as well as any lender’s coverage requirements.
Legal Insurance Requirements
Although it varies by state, there are minimum coverages required for car insurance. This legal requirement applies to leased vehicles in addition to owned vehicles. Minimum coverage required by law usually includes a certain amount of liability coverage. This coverage helps to pay for damages to another person or their property if you are the cause of a car accident.
Lender’s Insurance Requirements
In addition to the legally required state minimums for car insurance, most car lenders require additional coverage to protect themselves as the owner of a leased vehicle. Your lender’s requirements for liability coverage, for example, may be significantly higher than the state minimums. This ensures that the lender, who technically is the car owner, is not responsible for damages to another person or their property. Your lender may also require that you have comprehensive coverage, which may cover loss or damage to your vehicle caused by theft, fire, earthquake, and other non-collision events.
Additionally, a lender may require that a leased car be covered with collision coverage. Collision coverage protects the car from damages caused by collision with another vehicle or object. This type of coverage helps pay for physical damage to your car if you are in an accident or other collision, regardless of fault. Collision coverage may be required because it protects your vehicle and the owner, your lender, if you are in an accident. Other coverages may be required by your lender, including uninsured motorist property damage coverage, which protects your vehicle if you are in an accident with a driver who does not have car insurance. With no insurance from the other driver to help pay for your vehicle’s damages, uninsured motorist protection helps with repair costs.
Some insurance to protect your lender may be included in your lease payment. It is common for lenders to purchase gap insurance policies for leased cars. Gap insurance covers the cost difference for what you owe on the vehicle and what your insurance company is offering to pay in a claim. Including gap insurance coverage in a lease agreement helps protect the lender from paying out of pocket to repair or replace the vehicle.
Is Insurance Higher When Leasing a Car?
Car insurance prices are dependent on factors of both you and the car you are insuring. Factors that focus on the driver include age, length of time driving and previous driving history. Your vehicle will contribute to insurance costs based on the make and model of the car, as well as the specified use of the vehicle. These factors do not change when buying or leasing a car. All coverages equal, leased cars are not more expensive to insure.
The difference, however, is in how much coverage a driver would normally choose for a vehicle. Leased cars can be more expensive to insure because there are generally more required coverages than those for owned cars. Drivers who buy their cars and choose many different coverage options, however, may face the same cost of insurance as a leased car. Lenders may require a leased car to have higher coverage limits and additional coverages such as collision or comprehensive coverage. Depending on what is required, the cost of insurance for a leased car may be noticeably higher than the cost to insure a car that you own.
How Much is Insurance on a Leased Car?
Though it may cost more to insure a leased car because of more coverage requirements, you may be eligible for car insurance discounts . With various good driver and loyalty discounts, your car insurance premium for a leased car may be similar to the price of insurance for an owned car. The easiest way to find out how much auto coverage for a leased car will cost is to get a free quote for your leased vehicle. .