If you lease a car, does it come with insurance?

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Joel Ohman
Founder, CFP®https://res.cloudinary.com/quotellc/image/upload/insurance-site-images/ciccom-live/41b5e36b-joel-ohman.jpg

UPDATED: Jul 19, 2017

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Here's what you need to know...
  • You are required to carry car insurance on a leased vehicle
  • The types and amounts of insurance will depend on the requirements of your state and your leasing contract
  • In general, you will need liability, comprehensive and collision coverage to meet the requirements of both
  • Gap insurance is usually also required though many times it is rolled into your lease payments

While buying and leasing are both ways to have access to a vehicle, there are many differences between them. For people who are not familiar with either process, the ins and outs of buying and leasing can be confusing, especially insurance requirements.

If you are considering leasing a vehicle, you might be wondering if insurance is included in your lease.

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Leasing versus Buying a Vehicle


There are many differences between buying and leasing a vehicle. People in the market for a new vehicle will need to do their research and evaluate their tastes and lifestyles to find out which option is best for them.

The benefits of leasing a car include:

  • Smaller down payment requirement
  • Smaller monthly lease payments
  • Driving a better car for less money
  • Decreased repair costs compared to buying, as a factory warranty usually covers most repairs during a 3-year lease period
  • The ability to drive a brand new car every two or three years
  • No need to hassle with trading in your old car to get a new one
  • You only pay the sales tax on the amount of the car that you finance

The drawbacks of leasing a car include:

  • When the lease has expired, you do not own the vehicle
  • You are required to stay within a set mileage limit or pay overage fees
  • Lease contracts can be overwhelming and confusing
  • In the long run, leasing a vehicle can be more expensive than buying
  • You may have to pay for wear-and-tear on the vehicle which will be due upon termination of your lease
  • If you need to terminate your lease early, it can be costly

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Car Insurance When Leasing

According to the Insurance Information Institute, when leasing a vehicle, you are still required to purchase your own insurance coverage for it.

The bank or dealership that is leasing you the vehicle will mandate that you purchase and provide continuous collision and comprehensive coverage.

This is because your leased vehicle is still technically owned by the bank, dealership, or leasing company.

They want to protect their asset in the event that some type of accident or unforeseen event destroys, damages, or causes the car to be lost.

Additionally, you will need to carry coverage that is required by your state, such as liability insurance.

Liability insurance protects you as the driver and also protects the leasing company from being responsible, should they be named as an at-fault party to any accident.

The appropriate amounts of insurance coverage will protect both you and your leasing company from financial ruin, should a catastrophe occur with the leased vehicle.

Shopping online and comparing prices of different companies and insurance policies can help you make the best decision regarding coverage on your leased or purchased vehicle.

  • Collision coverage  pays for damage to your leased vehicle when an accident occurs with another vehicle or object
  • Comprehensive coverage – pays for losses that are a result of something other than the leased car colliding with another object or automobile

What is Gap Insurance?


Even if you have the coverage required by your state laws and collision and comprehensive coverage required by your lease agreement, the bank or dealership may also require you to purchase what is called gap insurance.

This type of insurance covers the “gap” in the event that your car is totaled and there is a difference between the amount your car insurance pays you for it and the amount that is owed on your lease.

This can happen because the amount your insurance company pays you for a totaled vehicle is based on its actual cash value, not the amount that is still owed on a lease or a car loan.

Gap insurance is different than other insurance coverage on a leased car, because it is usually rolled up into the lease payments, so no extra payments or additional companies need to be paid.

In most cases, the dealer or bank that leases the vehicle out will purchase a master policy from a large insurance company. This policy covers the gap insurance for all of the vehicles that they lease out.

The bank or dealership will then charge you for a gap waiver with your lease agreement.

If you will be leasing a vehicle, you should check with your leasing company or on the contract to find out if you are responsible for obtaining gap insurance or if it is rolled into your lease payments.

Even people who are purchasing a vehicle might want to look into obtaining a gap policy.

Commonly Required Leasing Coverage Amounts

When purchasing an auto insurance policy for a leased vehicle, you should be certain you are meeting the minimum requirements for both the state and your leasing contract.

Some contracts require as little as $20,000 per person and $40,000 per occurrence liability insurance, $5,000 property liability coverage, comprehensive and collision coverage for the actual value of the leased vehicle with a maximum $1,000 deductible.

However, other leasing companies may require as much as $150,000 per person and $300,000 for each occurrence, as well as $50,000 for liability coverage.

No matter what your leasing company requires from you as far as insurance coverage, comparison shopping can help you get the best policy for your needs at competitive rates.

If you are to get into an accident in your leased vehicle, regardless of who is at fault, the best way to protect yourself and your assets is to have appropriate insurance coverage.

Start comparing car insurance rates by entering your zip code in our FREE tool below!

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