Leasing is a popular alternative to buying or financing. A lease 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 lease from will likely require full coverage on the car. 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 when you choose to lease from them. Finally, this article will explain what happens if you total the car and how you can avoid having to pay back the lease 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 buy full coverage when you lease a car.
Full coverage usually consists of collision and comprehensive coverage. No state requires full coverage, 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 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 insurance will also protect you from damages that occur from accidents that don’t involve another car. This includes collisions with:
- Light posts
- Potholes in the road
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 single-car accidents.
Full coverage also includes comprehensive insurance. 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
- 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 coverage 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 insurance that covers personal injury.
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.
Insurance That States Require
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 requirements. This includes what type of protection you’ll need to have and how much of it.
Below are the types of insurance that states generally require you to have:
Most states will require you to carry liability on your policy 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. Liability only covers the other person’s expenses, not yours.
There are two parts to liability insurance. Bodily injury and property damage liability.
Bodily injury liability 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)
- 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 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
- 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 do require UM/UIM, not all of them do. Be sure to consult with your state’s laws and speak with your agent to know if you need it or not.
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.
Gap Insurance 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 thousands of dollars when your car is a total loss is by getting gap insurance. 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
Q: Is insurance higher for leased cars?
A: Yes. Insurance will generally be higher for people who lease their car. This is because you don’t necessarily get to pick and choose which auto coverage types to add to your policy.
The dealer you lease from will most likely require you to buy full coverage and possibly gap insurance. They may also want you to set a certain limit. This will all lead to higher premiums because you’ll likely need more insurance. It would also be a good idea to compare rates between different companies so you can get the cheapest deal possible.
Q: Does gap insurance cover leased cars?
A: Yes, gap insurance will cover your lease. In some cases, your auto dealer might even include gap insurance as part of your contract. It’ll pay the remaining balance on your lease after it becomes a total loss.
Q: Is there auto insurance for leased cars?
A: The coverage you’d normally use for any car is the same for a lease. There is no special type of lease insurance that you’ll need. But your dealer might require you to carry certain types of 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 types of coverage and a potentially larger amount.