Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Feb 10, 2016

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Here's what you need to know...

  • Insurance is required on leased vehicles
  • The leasing company will dictate the coverage levels
  • Gap insurance is required, but it may be provided through your dealer

When you purchase a new or used car, you’re required by law to carry insurance on the car for as long as it’s on the road. However, rental cars do not carry any such insurance requirement. You can rent a car and start driving without paying for your own coverage. This can leave people feeling a little confused when they’re ready to lease a car. The fact is that you are required to purchase your own car insurance if you lease a vehicle for any period of time, and the leasing company will dictate what type of insurance and levels you purchase. Compare car insurance rates now by using our FREE tool above!

Contractual Requirements

As you sit down to sign the leasing contract on your new car, you may notice a section that outlines how much coverage you’re required to carry. These levels will vary from one manufacturer to the next, but the bottom line is that the parent company requires certain insurance levels to ensure that their financial interests are covered.

Keep in mind that these stated amounts are the minimums required by the leasing company. If they do not meet or exceed the state minimums for liability protection, then you’ll be legally required to go with the higher amount. Additionally, these amounts are only in place to protect the leasing agent’s financial interest. They may not be adequate to shield your other assets in the event of an accident and lawsuit.

Your liability limits should be high enough to protect your personal assets in the event of an accident.

In some cases, you won’t be allowed to drive the car off the lot until you can prove that you have adequate coverage, so you’ll want to shop around for coverage early. Be ready to provide the comparison site or insurance company with the make and model you’re considering, as well as the limits you’re interested in. Once you know how much your insurance will cost, you can make the necessary adjustments to your purchasing budget.

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Protection for the Asset

It’s important to remember that every agency requiring insurance has a different goal. The state is trying to protect all drivers by ensuring that people have the coverage necessary to cover damages in an accident. In the case of leasing companies, they’re trying to protect the asset that they are essentially renting out to you. In the event that you are involved in an accident, they want to know that the car will be covered so that they can still eventually be paid the agreed-upon amount.

While most states demand that you have liability coverage to protect other drivers, the leasing company is going to want full coverage that includes comprehensive and collision. This is to cover vehicles that may become lost or stolen. You can expect the base requirements to include:

  • A maximum deductible of $500 or $1000
  • $100,000 per person for bodily liability insurance
  • $50,000 per incident for property damage liability
  • Gap insurance to cover any difference between value and balance if a car is totaled

When you’re shopping for basic insurance at state minimums, you’ll find that rates tend to be very low provided you have a decent record. As you add the coverages required by your lender, you’ll see the monthly premium rise steadily. You can bring the cost down by taking the time to shop around for different rates. Rather than spending your time trapped on the phone waiting for answers, use a comparison tool to quickly and efficiently get the information that you require.

Gap Coverage May be Included

Some dealers opt to cover all of their leased vehicles with a master policy. Your cost for this coverage is rolled into the lease payments so you won’t have to get an additional policy from your insurance company. This can save you some time and money, but you’ll need to ask your dealer if it’s included when you first look at the car.

Beyond the Insurance

There are also a few expenses beyond insurance that may take you by surprise. One is the fact that some leasing companies require the use of original replacement parts. The leasing company knows that the vehicle will eventually come back to them, and they want to be able to get top dollar for it at resale.

This is why they limit the mileage and require that original equipment is used in any repairs.

You can take some of the sting out of the cost of these repairs by going with the right insurance plan. When shopping around for different providers, ask if the policy you’re considering will cover the higher cost of OEM parts.

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What to Do When Leasing a Car

When you lease a car, there’s a good deal of fine print to read through. You’re anxious to get on the road, but you want to be sure that you have the protection you need and are in compliance with your leasing company’s requirements. Follow these tips to protect your best interests when you lease a car.

  • Do read the lease agreement thoroughly and ask any questions
  • Don’t assume that gap coverage is included. Ask your agent for specifics on this
  • Do talk to your agent about vehicle replacement coverage
  • Don’t forget to ask for insurance credits that you may qualify for
  • Do invest in comprehensive and collision protection
  • Don’t try to save money by skimping on coverage
  • Do take the time to compare plans and quotes for a better rate

If you’ve made the decision to go with a leased vehicle, then you need to learn more about the insurance requirements. You can expect to pay far more for full coverage than you would pay for liability only plans. You’ll be pleased to know that you can save money on your insurance be shopping around, asking for available discounts and maintaining a clean driving record. Enter your zip code in our FREE tool below to compare car insurance rates now!