If you’re leasing a vehicle, then you may be wondering about car insurance. Is car insurance different when leasing or buying a vehicle? Do you need different car insurance for your leased vehicle?
Today, we’re explaining everything you need to know about car insurance for leasing versus buying a vehicle.
Leasing Versus Financing: What’s the Difference?
Some people buy a vehicle with cash outright. Other people lease or finance a vehicle. Depending on your budget and needs, either option can work for you.
The main difference between leasing and financing a vehicle is who owns the vehicle at the end of the lending period. When you lease a vehicle, you don’t own the vehicle: you must return it to the titleholder when your lease period expires.
When you finance a vehicle, you’re borrowing money to buy your vehicle, and you owe money to the lienholder. Once you’ve paid off your vehicle, the lienholder’s name will be removed from the vehicle title, and it will exclusively be in your name.
How to Insure a Leased Car
You don’t technically own a leased vehicle, and you won’t own the leased vehicle at the end of your lease period. Nevertheless, you’re still required to have your own car insurance on the vehicle: it does not come with car insurance.
A leased vehicle requires all of the same insurance protection as any ordinary vehicle. You’re still required by law to carry whatever insurance is needed in your state, including but not limited to:
Liability Coverage: Virtually every state in America requires drivers to carry a minimum amount of liability coverage. Liability coverage pays for property damage and medical expenses incurred by others if you caused a car accident.
Uninsured and Underinsured Motorist Coverage: This car insurance coverage protects you against drivers without insurance or with too little insurance. 1 in 7 drivers in the United States has no car insurance, and some drivers have too little car insurance. That’s why some states require you to have uninsured or underinsured motorist coverage.
The two policies above are required by law for virtually every driver in the United States. All states require basic liability coverage (which protects other drivers on the road), and most states require uninsured and underinsured driver insurance.
If you’re leasing a car, however, then there are additional insurance requirements.
Additional Insurance Required by Your Leaseholder
If you’re leasing a vehicle, then you don’t actually own your vehicle. You’re essentially renting someone else’s property for a short period. The owner wants to protect its financial interest, which is why they require you to carry additional insurance.
In most cases, the financing company (which owns the vehicle) will require you to carry collision coverage and comprehensive coverage as part of your auto insurance policy.
Collision Coverage: Collision coverage pays to repair your car if you hit another vehicle or object, regardless of who is at fault. Without collision coverage, your car repairs may not be covered after a collision.
Comprehensive Coverage: Comprehensive coverage, unlike collision coverage, covers damage to your vehicle outside of collisions. Comprehensive coverage can cover hailstorm damage, for example, as well as vandalism, theft, and more.
Both of these policies are required when leasing or financing a vehicle. In other words, you’re required to have full coverage auto insurance when leasing or financing a car.
Your Lease May Include Gap Insurance
Some leasing companies add car insurance to your lease agreement. You pay for this car insurance with your lease payments.
Many leasing companies will include gap coverage, for example. Gap coverage closes the “gap” between the amount of money owed on your vehicle and the actual cash value of your vehicle.
Let’s say you’re leasing a new truck worth $50,000. The value of that truck drops $10,000 when you drive it off the lot. If you get into an accident on the way home from the dealership, then the leasing company still owes $50,000 on the truck, but the car insurance company will only provide a check for $40,000. There’s a “gap” between the actual cash value of the truck and the amount owed. That’s what gap coverage covers.
Check your leasing paperwork to verify that gap insurance is included in your lease payment. You can also purchase gap insurance after your lease start date.
Do I Have to Get Gap Insurance on a Leased Vehicle?
Gap insurance covers the difference between the actual cash value of the vehicle and the amount owed on your vehicle.
As mentioned above, gap insurance is often included in your lease payment. If it’s not included, then you can purchase gap insurance after your lease start date.
Not all drivers will need to purchase gap insurance on a leased car. Some drivers are okay with absorbing additional risk. Others want maximum protection. Just like with most insurance requirement debates, it comes down to your personal level of risk.
How to Get Auto Insurance on a Leased Vehicle
We’ve told you about car insurance requirements for leased vehicles. But how do you actually get car insurance on a leased vehicle?
Fortunately, getting car insurance on a leased vehicle is easy. It’s as straightforward as getting car insurance on your own vehicle.
You can apply for car insurance quotes as usual. You will, however, need to tell your car insurance company who the leasing company is. The leasing company will be a named insured party on your policy.
As long as you know the name of your car insurance company, you can request car insurance quotes as you usually did: use insurance quotes comparison websites like our own. Or, visit individual car insurance company websites to get the best quote for your insurance needs.
Conclusion: You Need Full Coverage Car Insurance When Insuring a Leased Vehicle
If you’re insuring a leased vehicle, then you typically need full coverage car insurance. The financing company will require you to have full coverage car insurance, including collision and comprehensive coverage. This insurance coverage protects the financing company’s investment. After all, the financing company is the one that technically owns your vehicle.
Some vehicle leases also include gap coverage, while other drivers choose to purchase additional gap coverage.
Compare car insurance quotes online today to get the best rates on your leased vehicle. Buying car insurance for a leased vehicle is as straightforward as buying car insurance for a vehicle you own: the main difference is that the lender is named as an insured party on your insurance policy.