Insurance for a Leased Car
Last Updated on April 2, 2020
Your vehicle could have mysteriously broken down and died at an inconvenient time. You might be someone who is always on the move and doesn’t stay in one place for long. You might simply just be slowly saving up enough money for a car of your own. You could even be a man on a long-term vacation that needs a temporary ride for a few weeks or months. Whatever the case may be, leasing a vehicle might be the most bang-for-buck solution for your needs.
Think about it: the maintenance of the vehicle is handled by someone else, most of the paperwork is done for you, and you don’t have to worry about insurance…
… or do you? Do you know that a leased vehicle does not always come with its own insurance plan and policy? Do you know that you might have to pay hefty fines just because you’re unaware of this? If you’re driving a leased vehicle, you better check with your lienholder about auto insurance for your leased vehicle!
If insuring your leased vehicle is your main agenda right now, then you’ve come to the right place: continue reading below to find out how to properly protect a car that you are leasing.
How Expensive Is Auto Insurance for Leased Vehicles?
So, you’ve been driving for a while now, and you’ve gotten to a point where your auto insurance premiums are pretty low. However, you’re moving to a new state for a few months, and are looking to lease a car in the state you’re moving to. “My auto insurance premiums will definitely be as low as before,” you think smugly to yourself.
Wrong! In reality, premiums are much, much higher for leased vehicles, because the coverage for leased cars is about 4 times that of state requirements! Usually, your lienholder will gun for about $100,000 worth of Personal Injury Protection, $300,000 for Bodily Injury Liability and $50,000 for Property Damage Liability. That’s a lot of coverage for a vehicle, but you’ll have to do as the lienholder dictates – because he’s leasing his car to you!
What Type of Coverage Will Your Leasing Company Require?
Most leasing companies require you to have full coverage car insurance on the vehicle. That means you need liability insurance, collision insurance, and comprehensive insurance on your vehicle. Together, these three policies protect you, your vehicle, and your leasing company from all types of risk:
Basic Liability Insurance: This insurance is legally required in all states except for New Hampshire. It includes bodily injury liability coverage and property damage liability coverage, which cover damages, medical bills, and other expenses you inflict on other people or property in an at-fault collision.
Collision Coverage: Collision coverage is optional in all states. It covers damage to your own vehicle. On a leased vehicle, you are required to have collision coverage, which includes the cost of repairing your vehicle to its pre-loss condition after an accident.
Comprehensive Coverage: Comprehensive coverage is also optional in all states. Comprehensive coverage covers all types of situations where your vehicle could get damaged, including theft, vandalism, storm damage, fire damage, and other non-accident-related incidents.
When you have all three types of coverage listed above, you are said to have full coverage auto insurance. All leasing companies require you to have full coverage car insurance.
What Type of Coverage Do States Require?
All states require you to have basic liability insurance. Whether you’re leasing a car or not, you need liability coverage in every state (except for New Hampshire, which has different insurance laws but still requires drivers to have some type of liability coverage).
As mentioned above, basic liability insurance covers bodily injury liability and property damage liability. All states have specific minimum limits required for this liability insurance, ranging from $10,000 to $100,000. Some leasing companies may require you to exceed these minimum limits, while others allow you to simply meet the minimum limits.
Some states have additional coverage requirements, including personal injury protection (PIP), which is required in 12 no-fault states. Personal injury protection covers medical expenses after an accident regardless of who was at-fault for the accident. If you are driving a leased vehicle (or any type of vehicle) in a no-fault state, then you are required to have personal injury protection coverage.
The 12 no-fault states include Florida, Michigan, New Jersey, New York, Pennsylvania, Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota, and Utah. In all of these states, you are required to have PIP coverage when insurance your leased vehicle.
Ultimately, when you buy car insurance for your leased vehicle in any of the states above, your car insurance will include all of the coverage you are legally required to have in that state.
Gap Insurance Coverage for Your Leased Car
There’s also another thing you need to think about in regards to insurance for leased vehicles: gap insurance. Gap insurance is the insurance that covers the “gap” between the actual value of your car and the amount you still owe on it.
To explain it further: the actual cash value (ACV) estimates your vehicle’s worth, and this value drops as the years go by. In fact, the value of your vehicle falls dramatically by about 20% the moment you drive it out of the dealership!
When you crash in an accident, the vehicle is deemed as “totaled” if it suffered irreparable damage. You will then be reimbursed for the value of your vehicle at the point of collision – which means that the depreciated value will not be reimbursed to you.
Gap insurance prevents just that – by having gap insurance, you will get a larger percentage of the original value of your vehicle back when the insurance company pays out your claim.
Usually, most people do not get this insurance because of the high premiums they have to shelve out. However, lienholders always purchase this sort of insurance – which is why insuring your leased vehicle might be a big headache for you.
Who’s Actually Paying the Auto Insurance Bill for a Lease?
For leased vehicles, there might be a grey area in terms of who is supposed to pay for the insurance. Most lienholders will pay for the premiums themselves, and reflect the extra charges in the price of leasing the vehicle out to you. Other times, you will have to settle the insurance bill for your leased vehicle yourself. The bottom line is this: check with your lienholder before you do anything. If you are still not sure, give your auto insurance agent a call and check with him or her. When it comes to leasing vehicles and all the financial headache that could be involved, it’s always better to be safe than sorry!
What to Do When Your Lease Ends
What happens to car insurance when your lease ends? Typically, you can choose one of the following four options, depending on what you plan to do with the vehicle:
1) You Are Extending the Lease: Nothing should change with car insurance if you are extending the lease. Your car insurance should be automatically renewed for the same vehicle. However, you should still compare car insurance quotes periodically to ensure you’re paying competitive premiums.
2) You Are Buying the Vehicle: If you are buying the vehicle after the lease ends, then you may no longer be required to maintain higher liability coverage limits. You may want to lower your limits to reduce your premiums (and increase your risk). If you are financing the vehicle, however, then you are still required to have collision and comprehensive coverage.
3) You Are Trading It In: If you are trading in your vehicle, contact your insurance company to update your policy for your new vehicle. Or, you can switch insurance companies as well. Make sure you avoid a lapse in coverage.
4) You Are Walking Away: If you are walking away from the leased vehicle, then you may no longer need car insurance. You may want to cancel your coverage outright. However, it may be smart to maintain insurance coverage if you plan to drive another vehicle in the near future. Insurance companies will punish drivers for having a gap in coverage. If you cancel your car insurance and then re-purchase it in the future, then you may be stuck paying higher insurance premiums because of your gap.