Auto Insurance for Leased Cars

Are you planning to lease a car? You may need certain types of car insurance for it. Read more to learn what lenders require you to have.
A young woman buys a car in a car showroom.

Leasing is a popular alternative to buying or financing. This works differently than a rental or financing a car. Leasing from a dealer means you’re renting the vehicle long-term. This period can last anywhere from 12 to 36 months. Like when you’re financing a car, you don’t own a lease. This means they’re likely to set rules for you to follow to protect their asset and money.

Before you lease, you should understand what that means for your auto insurance. The dealer you get the car from will likely require full coverage. This means you’ll need to carry a few different types of coverage to satisfy the requirement.

In this article, you’ll get an idea of what types of insurance you’ll need to buy if you lease a car. This includes taking a look at what the dealer will require of you once you get the vehicle. Finally, you’ll get an idea of what happens if you total the car and how you can avoid having to pay back what you owe out of pocket.

What Your Car Lender Will Require of You

When you lease from a dealership, you’ll need to abide by the rules they set for you in the contract. This includes what types of insurance you’ll need to buy. Lenders want to make sure that their car will have protection from all types of damage. Generally, this means you’ll have to full coverage when you lease a vehicle.

Full coverage usually consists of collision and comprehensive coverage. No state requires it, but your lender likely will so that they can protect their financial interests. Below is a brief description of what each type of insurance will protect your leased car from:

Collision Insurance

Collision insurance coverage protects your car from damages that an accident causes. It’ll cover the costs regardless of fault. However, if you’re not at fault, the other person’s liability coverage will likely cover most or all of the damages.

Having collision will also protect you from damages that occur from accidents that don’t involve another car. This includes collisions with:

It’ll also cover single-car accidents. This is an accident that doesn’t involve any other cars or objects. Falling and rollover accidents are common examples of this.

Comprehensive Insurance

Full coverage also includes comprehensive coverage. This coverage protects your lease from damages that random disasters cause. Some insurers may also call these an “act of God.” Here’s what comprehensive coverage will protect your leased vehicle from:

  • Natural disasters i.e., hurricanes, tornadoes, earthquakes, hailstorms
  • Flooding or water damage (only if you weren’t at fault)
  • Vehicle theft
  • Vandalism
  • Riots or civil disturbances that cause damage (this is similar to vandalism)
  • Windshield damage (only if a random event causes it)
  • Falling objects
  • Fire damages
  • Collisions with an animal, such as a deer

All of the above are examples of random events that you can’t control. Comprehensive coverage will make sure neither you nor your car lender loses money while paying the expenses for it.

What Full Coverage Won’t Cover

Collision and comprehensive insurance both protect you from expensive damages, but they don’t cover any medical bills. It’s unlikely that your car lender will require you to have any personal injury coverage.

It’ll be up to you to buy personal injury protection (PIP) or medical payments coverage (MedPay) to protect yourself from paying out of pocket for medical costs. Medical bills can cost thousands of dollars, so any type of add-on to protect you is worth thinking about.

State Requirements

To legally drive a leased car, you’ll still need to buy certain types of insurance that your state requires. Every state outside of Virginia and New Hampshire requires auto coverage to drive. Not all states require the same types, though. Each state has its own set of minimum coverage requirements. This includes what type of protection you’ll need to have and how much of it.

Below are the coverages that most states generally require:

Liability Insurance

Most states will require you to carry liability coverage to drive. This is the most basic form of auto insurance. It protects you from having to pay out of pocket for damages to another person’s car in an at-fault accident. Unlike full coverage, liability only covers the other person’s expenses, not yours.

There are two parts to liability: bodily injury and property damage liability.

Bodily injury liability (BIL) covers any of the other party’s medical expenses if you cause an accident. It’ll also cover any drivers on your policy in the car that you’re insuring. Bodily injury handles these types of expenses:

  • Emergency services (ambulance fees)
  • Surgeries
  • X-rays and other medical tests
  • Funeral costs
  • Loss of income or wages
  • Rehabilitation fees
  • Housekeeping due to injury
  • Follow-up doctor visits

Property damage liability (PDL) is the other part of liability insurance. It’ll protect you from any damages to another party’s property. This includes damages to any of the following:

  • Light posts
  • Telephone poles
  • Trees
  • Fences
  • Other vehicles
  • Buildings and structures

Each state that requires liability coverage will want you to get a certain amount. Be sure to consult your state’s laws on the minimum amount of liability coverage that you’ll need to carry.

Uninsured and Underinsured Motorist Coverage

Some states may require you to have uninsured and underinsured motorist (UM and UIM) coverage. UM and UIM coverage protects you from drivers who either don’t have enough car insurance or who have none at all. Not having UM and UIM could leave you to pick up the pieces and pay for the expenses after an accident.

While some states require UM/UIM, not all of them do. Be sure to consult with your state’s laws and speak with your agent to decide whether you need it.

What Happens if You Total a Leased Vehicle

Things can get complicated when an accident totals your car. An insurer will usually declare your car a total loss if the cost of the car’s repairs is more than its actual cash value or ACV. If you owned the vehicle outright, you’d then get to decide what to do with it afterward.

It’s a bit different when you’re leasing or financing. In both situations, you’ll still owe the balance remaining on the lease or loan. This can usually amount to thousands of dollars left to pay with interest.

Guaranteed Asset Protection (Gap) Will Help

A car’s value will depreciate as soon as you start driving it. This means that the car’s cash value, especially after an accident, won’t be as high as you may think. This could leave you on the hook to pay thousands back to your lender.

One of the ways you can avoid paying out of pocket when your car is a total loss is by getting gap coverage. Guaranteed Asset Protection, or gap, is a type of auto insurance that will protect you from having to cover the rest of your lease or loan. It’ll cover the difference between your car’s cash value after the accident and the rest of the loan.

Your lease contract might already include gap coverage. Car dealerships often add it into the contract. This is because it ensures that they’ll be able to get their money back if the vehicle gets totaled. Before buying any gap of your own, you should check with your car lender to make sure that you don’t already have it.

Frequently Asked Questions

Does it cost more to insure leased cars?

Yes, insurance for leased cars is usually more expensive because whoever financed your lease is the vehicle’s owner and they’ll want their property fully protected. So, you could end up with significantly more coverage than you might have otherwise purchased.

The dealer you lease from will most likely require you to buy full coverage coverage and possibly guaranteed asset protection. They may also require you to maintain high limits. Depending on the vehicle, these extra protections can really add up. That’s why it’s good idea to compare rates between different companies so you can get the best deal possible.

Does guaranteed asset protection (Gap) cover leased cars?

Yes, guaranteed asset protection covers your lease. In some cases, your auto dealer might even include gap coverage as part of your contract. It’ll pay the remaining balance on your lease after it becomes a total loss.

Is there a special kind of insurance policy for leased cars?

There is no special type of auto leasing insurance. The coverage you’d normally use for any car is the same for a lease. But your dealer might require you to carry full-coverage on your policy. They do this to protect both their vehicle and money. Insuring a leased car doesn’t cost more either, you just might need more coverages and a potentially larger amount.

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