Do I Need Special Insurance for a Leased Vehicle?
For some people, leasing a car makes more financial sense than buying one. They may only need the car for a limited amount of time, or they may have a job or lifestyle that requires a constant stream of new vehicles. Other people simply prefer leasing over car ownership. Whatever the reason, if you choose to lease a vehicle, you will need to understand what car insurance is required.
When leasing a vehicle, the car belongs to the dealership or leasing agency. You are paying for the right to own the vehicle, and you are financially responsible for any damage it may cause or sustain, but you lose ownership of the vehicle after the leasing period is over. Because of this unique situation, car insurance is different for leased vehicles than for those you own outright.
In general, insurance policies for leased vehicles will be the same as those for vehicles with a lien holder. Until you pay off a vehicle that you own, it is technically the property of the bank, and your insurance policy reflects this. If you’re accustomed to financing new vehicles, your insurance coverage for a leased car may be very similar to what you’re used to.
What Coverage is Required for a Leased Car?
The specific coverage you require will depend on the leasing company that’s providing the vehicle. In general, you will be expected to carry full coverage on your vehicle with a $500 deductible for both collision and comprehensive. You may get a lower deductible if you wish, but it will cost more for each monthly premium.
In addition to collision and comprehensive coverage, you will be expected to carry liability insurance with limits higher than the state minimums. The exact limits required by your leasing company will be listed on the leasing agreement. Additionally, you will need to carry uninsured motorist coverage in any state that offers it.
It’s your choice whether to purchase any optional coverage for your vehicle, such as towing or rental reimbursement. These coverage options can help save you money in the event of an accident, but they may be too pricey for some consumers. You may also have some of the benefits of extended coverage already available to you under the leased vehicle’s warranty. It’s a good idea to review that information before making any decisions on your insurance policy so you can maximize coverage without unnecessary expenses.
Lease GAP Insurance
One coverage you should be sure to purchase is lease GAP insurance. GAP stands for “guaranteed auto protection,” and it helps to protect you in the event that the car is stolen or declared a total loss from an accident.
Essentially, GAP insurance pays the difference between the actual value of a vehicle and what you owe on it. If your vehicle is a total loss due to damage or theft, the insurance company can only pay for the vehicle’s actual cash value. Depending on your leasing terms, you may owe more for the vehicle than its cash value thanks to depreciation. This could leave you responsible for paying off damage on a vehicle that you no longer own. Purchasing GAP insurance prevents this situation from occurring.
GAP insurance is usually fairly affordable. You can often purchase it directly from the leasing agency or dealership and add the cost onto your car payment. Alternatively, you may be able to purchase GAP insurance from your primary insurance company as an added coverage for your policy.
What Happens When You Turn in the Vehicle?
After you return a leased vehicle, the leasing agency will have the car inspected for damage. Any damage on the vehicle will be your responsibility regardless of its cause. If damages are found, the leasing agency will contact your insurance company to file a claim. You will then be billed for your deductible.
Because of this, it’s usually a good idea to file a claim as soon as damage occurs rather than waiting until the vehicle has been returned. This allows you to explain the cause of the damage to your insurer and plead your case if the damages were not your fault. This will often allow you to avoid paying a deductible and can keep your leasing agency happy.
When it comes to buying auto insurance, leasing a vehicle is not much different than financing one. The most important step is to review the leasing agreement carefully and ensure that you are getting a policy that will suit your needs and conform to the agreement. Once you know what you need, it will be easy to comparison shop for the best possible insurance company.