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Insuring a leased car

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If you drive a leased car, you’re required to carry car insurance. On top of your state’s minimum car insurance requirements, your lender may require you to carry additional coverage. Because of that, you might spend more to insure a leased car than a financed car.

Despite the cost, having car insurance for a leased car is important. Auto insurance covers the damages to your vehicle after an accident and covers you for certain liabilities as a driver. 

Should you lease a car?

Leasing a car can be a smart financial move for many people. You’re able to enjoy the benefits of having a brand new car without the big down payment. Some upsides of leasing a car include:

  • Low monthly payments: When you lease a car, your monthly payments are lower than a loan payment for a financed car.
  • Cheaper for infrequent drivers: A leased car usually has a maximum number of miles it can be driven. If you surpass the limit, you might be charged a fee. For drivers who don’t use their car often, leases with a low mileage limit can be an affordable option.  
  • New vehicle options: When your lease is up, you can choose a new car and start a new lease. Because of that, leases are a good option for drivers who prefer to be in new vehicles.

However, leasing a car isn’t a great option for everyone. There are situations when leasing a car can cost more money over the long term. Here are some of the cons of leasing a car:

  • No equity: When you finance a new car, you build equity over time as you get closer to paying off the loan and owning the car outright. With a lease, you don’t earn equity, and you don’t own the vehicle you’re paying for.
  • Maintenance responsibilities: When you return a leased car, it must be in a certain condition. If you get into an accident or even get a minor scratch on the car, you may have to pay for repairs before you return it.

For many people, the pros of leasing a car outweigh the cons. But if you exceed the maximum mileage limit, or return the car in poor condition, it could lead to costly penalty charges. Before signing a lease, it’s important to weigh your options.

What coverage do you need for a leased car?

Insuring a leased car is essentially the same as insuring a financed car. You’ll have to include your leasing company on your policy. Because your leasing company technically owns the vehicle, it has to verify your vehicle always has insurance. 

Like a financed vehicle, you’ll have to carry full coverage for a leased vehicle. However, the main difference is the coverage amounts you’ll need. Your leasing company will more than likely require you to carry higher liability limits. You don’t own the vehicle, so you can’t choose to lower your coverage amount. If you do, you may incur additional costs.

Many leased car owners also choose to purchase gap insurance. Gap insurance provides added protection if your leased car is stolen or declared a total loss after an accident.

Do you have to get gap insurance?

Your lease provider may require you to purchase gap insurance before you can sign the lease. Even if you don’t need gap insurance, it’s still a good idea to have it. If your leased car is totaled or stolen, gap insurance covers the difference in the amount you still owe and the value of the car.

Here’s how it works. If your car is totaled, your insurance company covers the vehicle based on its current market value. When you lease a car, you’re typically given a new car, which depreciates quickly. If your car gets totaled a few years into your lease, you will likely owe your lender more than what the car is worth. However, you’re still responsible for making up the “gap” in what you owe, and gap insurance helps you pay for it.

If you’re putting a small down payment on your leased car, you may need gap insurance, especially if you’re leasing a car that depreciates quickly. However, gap insurance is usually inexpensive, and it can be purchased through your lender or insurance provider.

What to do with your insurance after your lease ends

After your car lease ends, you have a few different options when it comes to lease car insurance.

If you’re extending your car lease, renew your insurance policy. If you’re unhappy with the rate or customer service, you can also shop around for a new company. Just make sure that if you switch providers, the two policies overlap by a day so you’re never without coverage.

If you’re trading in your car and signing a new lease, keep your insurance and add the new car to your policy. You’ll add the new vehicle to your insurance policy when you sign the lease — not during the renewal period.

If you’re buying your leased vehicle, keep your lease car insurance and remove the lease provider from the policy. At this time, you can also choose to update your coverage and adjust your coverage amounts.

If you’re walking away from your lease and choosing not to get a new lease or finance another vehicle, you can cancel your insurance policy altogether or pick up a non-owners policy. 

The takeaway

  • Leasing a vehicle has both pros and cons.
  • When it comes to insurance, lease providers often require drivers to have a certain amount of car insurance coverage.
  • Leased car owners will benefit from having gap insurance, in case their car is totaled or stolen.
  • You may need to update your insurance policy after your lease ends. 

If you need a car, you might choose to get a lease, rather than finance a new vehicle. Leasing a car has upsides and downsides, but it could be a more affordable option in the long run. Your lease provider will require you to carry a certain amount of car insurance before you can drive off the lot when it comes to insurance.

In addition to collision and comprehensive coverage, your lender might require you to carry gap insurance in case your car is totaled or stolen. Even if gap insurance isn’t required, it’s still a good investment that could save you thousands of dollars. If you decide to extend or sign a new lease, keep your insurance coverage the same, and make adjustments as necessary.

Elizabeth Rivelli

Elizabeth is an insurance writer for coverage.com, where she covers insurance providers and reviews policies to help consumers find comprehensive and affordable coverage for every area of their life. She has more than three years of writing experience for top online insurance and finance publications.

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