Do I need insurance to lease a car?

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Joel Ohman
Founder, CFP®

UPDATED: Dec 27, 2018

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Here's what you need to know...

  • When you lease a car, you are legally responsible for it
  • You will be required to carry an adequate amount of personal car insurance on your leased car
  • You will be considered a co-owner of the car to the Department of Motor Vehicles

Leasing a car can be very confusing if you are used to buying. You will sign a contractual agreement that says that you take responsibility for the car while it is in your possession, but at the end of the day, the leasing company owns the vehicle and you are simply paying for a portion of its value to use it.

If you are the type of consumer who prefers to have a new vehicle every few years, leasing may actually save you money and a hassle in the process.

When you are leasing a car, you are under contract for 1 to 5 years. Because you are not buying the car and you will not be earning equity, your payments for a leased car will be significantly lower than the payments for a financed car.

The payment will be the difference between the current value of the car and the expected value of the car at the time the contract ends. You may also be expected to pay a small leasing agent fee.

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Standard Car Insurance Requirements for Leased Cars


You will be required to carry an adequate amount of personal car insurance on your leased car because it’s required that all vehicles must be insured in the state where it is registered.

State car insurance requirements are very strict and they are not avoidable.

As long as the car is registered to be driven, it needs to have at least liability insurance, and it is the registered vehicle owner’s responsibility to buy the coverage.

Just because you are not the titleholder does not mean that the car is not registered in your name.

When you lease a car, the car will be registered to both the leasing agency and the contract holder.

You will be considered a co-owner of the car to the Department of Motor Vehicles. This is because you are responsible for damages that happen while you are driving and for fees accrued from tickets.

The leasing company is listed because they have an interest in the car.

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State-mandated Insurance Requirements

Every state has their own unique car insurance laws. Some require car insurance explicitly, and some will require insurance or another most expensive alternative.

Almost all individuals who comply with insurance laws will do so by purchasing a personal auto insurance plan from a carrier in their state.

If you fail to purchase auto insurance as the registered owner of a car, you could face some very damaging consequences and penalties.

The requirements for insurance will depend upon the state that you live in.

A majority of states will require at least some level of liability coverage that will pay for a minimal amount of third-party damages.

Other states, especially those in no-fault states, will require additional coverage to pay for your medical expenses.

Common coverage requirements include:

  • Bodily Injury Liability
  • Property Damage Liability
  • Medical Payments or Personal Injury Protection
  • Uninsured Motorist Protection

While state minimums satisfy the law and help you avoid a misdemeanor, they do not really provide you with the proper level of protection.

They are designed to act as a bare minimum and not adequate cover. Lessors understand this and this is why you are required to carry much more than the state minimums when you are leasing.

Requirements As Written in your Lease Contract


You should review your lease contract closely before signing it. Once you skim past the details on the payment, the charges, the amount due at signing and the termination statement, you will need to review the insurance requirements closely.

The requirements are extremely strict and are not negotiable.

Liability Requirements

If you enter into a finance contract, the contract has no specific requirements concerning your liability coverage. A lessor, however, has more interest in the car as a registered co-owner.

This is why you are required to carry a higher level of liability coverage than the state would require.

Liability consists of Bodily Injury and Property Damage cover. When these terms are written, they are written on a per person and per accident basis.

The lessor will require that you have no less than $100,000 per person, $300,000 per occurrence in Bodily Injury.

The Property Damage requirements are typically $50,000, but they could go up to $100,000 with some leasing agencies.

Physical Damage Requirements

You must carry physical damage coverage that will protect the actual vehicle in the event of a loss.

You will need both comprehensive and collision and the coverage will be force-placed if the company discovers you do not carry it.

One thing you need to know is that you cannot automatically take the highest deductible offered.

The company wants to be sure you can pay for your deductible so the highest option is $500.

Gap Insurance

You typically have an option to buy gap insurance, but it is required when leasing. Gap insurance will pay for the difference between the car’s worth and how much it is under contract for.

This will help you avoid expensive bills when the car is totaled.

The lessor may protect vehicles under a blanket policy, but the contract says a car specific plan is your responsibility. Be sure to compare the cost of insurance from different providers.

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