Buying a car tends to be pretty straightforward, but individuals who are negotiating a lease for their first time find leasing to be confusing. After reviewing the terms of the lease, gaining an understanding for the limitation on mileage, and learning what capitalized cost means, you have little room left to learns the ins and outs when it comes to your obligation to buy insurance. When you buy a car, you are the owner and the sole party responsible for insuring it. When you lease, the arrangement and requirements may be different. Read this guide to insuring leased cars before you negotiate a contract so that you know what to look for.
What is the difference between insuring a leased car and financed car?
If you are leasing or financing a vehicle, you are obligated to buy insurance on that car. You may fully understand why you need insurance on a financed car and then question why you do on a leased car. When you finance a vehicle, you are paying principal and interest with the intent to one day own that car.
When you lease, you are paying to take possession of the vehicle and eventually turn it in.
Since the leasing company remains the owner of the vehicle, you might assume that insuring the car would remain the lessor’s responsibility. While this is a reasonable conclusion to make, when you review the lease contract you will discover that the company contractually pass the burden on to you. With both leased and financed cars you have an obligation to buy coverage, but the requirements when you are leasing are more strict and can lead to much higher rates. These requirements protect the company from the liabilities that arise when leasing.
What are car insurance requirements on leased cars?
Auto lenders are only concerned that the borrowers carries and maintains full coverage on the car while there is a lien on it. A lessor, however, is concerned about both physical damage and liability insurance. When you enter into a lease contract, you are agreeing to buy a comprehensive insurance policy that includes high limits of liability, physical damage coverage, acceptable deductibles and possibly supplemental gap insurance. Here is a breakdown of the most common coverage requirements when you are entering into a lease contract:
- Bodily Injury Liability: $100,000 per person, up to $300,000 per accident
- Property Damage Liability: $100,000 per accident
- Comprehensive: $500 deductible max
- Collision: $500 deductible max
- Gap Insurance
Leasing companies take the insurance requirements very seriously. Having physical damage coverage protects their asset and requiring you to have liability protects the company if they are held responsible after a third-party loss. If your limits are too low or your deductibles are too high, they can take possession of your car and void your contract. This is why it is so important for consumers to price the cost of insurance before signing on the dotted line. You may be saving by leasing, but you do not want to get stuck paying the difference in insurance costs.
Why is gap insurance required?
Gap insurance is a unique type of coverage that you may be offered when you finance, but that you are required to have when you lease. One of the main reasons why it might be written into the contract as a requirement is because the company is concerned with depreciation and how they may be affected in a loss. By requiring the contract holder to buy the lease coverage, there will not be a gap between the worth of the car and what is owed.
Most leasing companies that require GAP insurance will include it in their contracts for an added cost. You should check the terms closely to avoid paying twice for the same coverage. If it is not included, you should shop around and check the rates with your bank and your personal insurer before you decide where to get your protection.
How to Keep Premiums Low When Leasing a Car
You may not have the option to raise your deductibles and select low limits of liability to keep your personal auto insurance premiums down, but you do have other alternatives. If you are really trying to reduce your regular out of pocket expenses, then you should be familiar with the different money-saving measures that exist in the car insurance marketplace.
You are not obligated to buy your insurance coverage from a company affiliated or partnered with the lease company. In fact, you are free to buy coverage from any licensed company in the state that is recognized by the Department of Insurance. Since every company sets their own rates and tries to attract their own crowd of clients, shopping around is key. Before you shop around, be sure you know how to save on your quotes.
Getting Favorable Ratings and Discounts
Most leading insurers offer a long list of discounts and ratings that keep rates down. You should look for as many discounts as possible when you are buying insurance on a leased car. Here are some discounts that can really lower your rates:
- Good Driver Discount/Accident-free
- Low Mileage Discount
- Good Student Discount (25 and under)
- Driver Safety Training or Mature Driver Discount
- Occupational Discounts
- Pleasure Usage Rating
- Experienced Driver Credits
- Prior Insurance Discount
- Multi-car Discount
- Multi-line Discount
- Student Away at College
Leasing a car can help ensure that you will always have that new-car smell in the near future. If you want to drive new models after 3 to 4 years, it could be a wise option. Be sure that you know the insurance costs and the requirements before you turn to leasing. If you compare premiums online through an online instant quote service, you can see if the premiums will be manageable and make an educated decision on your next car. Start comparing car insurance rates now by entering your zip code in our FREE tool below!