A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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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, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 19, 2021

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Here's what you need to know...

  • Most lease contracts state that it’s your duty to insure the property as long as the contract is in effect
  • Since the lessor has a financial interest in the condition of the vehicle, the party who is leasing it must keep full coverage on the car for the entire lease term
  • Most companies require a deductible for physical damage deductible between $50 and $500
  • It’s standard for the company to ask for proof that you have third-party coverage options of $100,000/$300,000/$100,000 to satisfy your contract
  • In some cases, GAP insurance is built into the contract, but some lessors still require you to buy GAP separately

When you’re deciding whether or not to lease a car, it’s important to see how the costs associated with a leased vehicle differ from common financing expenses. Most people focus on the down payment that’s due when working with a leasing company, as well as the signing and mileage charges, but leasing a car can also have a dramatic impact on your insurance premiums.

Insurance companies don’t factor in your lease to determine your rate. However, chances are that a leasing company will require a minimum amount of coverage which may increase your cost.

About four and a half percent of new car lessees get out of their lease agreement because they didn’t understand how leasing would affect their insurance rates. Before you assume that a lease will save you money, here’s what you should know about your insurance premiums!

Make sure you’re not caught off guard when leasing. There’s no reason why an informed driver should want out of their lease agreement, unless there was misinformation provided. Shop around using our FREE comparison tool to find the right coverage!

Why does leasing a car dramatically affect your insurance premiums?

If a driver goes from owning an old junker to a brand-new luxury model, they can expect to have their insurers raise the rates of coverage. If you’ve decided the most affordable way to drive a luxury vehicle is to lease it however, your lease payments may be low.

However, your insurance payments can more than double — especially if you owned an older vehicle with very low limits of liability and not physical damage coverage.

Mainly, leasing a car cost more because leasing companies require a higher level of insurance than finance companies and state officials.

If your limits comply with the state requirements, they may not comply with the lessor’s requirements. Bumping up your limits and adding full coverage can change your entire outlook on a lease.

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Will you be required to have full coverage?

If you’ve ever financed a car, you know that the lender won’t allow you to drive off the lot until you can show proof from your insurance company that you have both comprehensive coverage and collision coverage. Without both of these types of coverage included in your auto insurance policy, you won’t be able to lease.

Since the lender has a financial interest in the property being financed, you’ll have to insure it for unexpected damage until the loan is paid off.

Leasing companies also have a financial interest in the vehicle, and this is why you must carry full coverage for your entire term. Since the lessor takes possession of the car after the term is up, they have even more interest in the car being returned in one piece; the leasing company doesn’t want to end up having to pay more money for repairs. When you go from a liability-only policy to a full coverage policy, your insurance premium will go up.

Is there going to be less flexibility with your deductible?

One way to keep your insurance cost lowered is to raise your deductibles. Unfortunately, if you’re relying on high deductibles to keep your premium costs down, you might be out of luck.

Many leasing companies set a maximum deductible. While there are companies that allow a $1000 deductible, a majority prefer that your deductible stays at $500 or below.

Are there going to be higher limit requirements than you might have thought?

Some states have extremely low liability limit requirements. It’s important to review the mandatory limit requirements where you live before you ever shop for coverage.

While carrying those limits will help you stay in compliance with the law, they won’t automatically satisfy your requirements as a car lessee, and you could end up not having the type of coverage you need in order to lease the type of vehicle you want.

A majority of leasing companies require higher limit limits than what’s required under state law. The purpose of the high limit requirement is to pass on the burden of financial responsibility on to the lessee instead of the lessor.

In most cases, statutes require specific limits to make the lessor exempt from being financially responsible. The most common requirement is:

  • $100,000 per person for injuries
  • $300,000 per accident for injuries
  • $100,000 per accident for property damages
  • $300,000 combined single limit policy

Always check to see what type of policy is required and if there are any additional requirements from the leasing company, so that you’re not left confused and in that small margin of drivers who back out of their lease because they didn’t understand it.

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What is GAP insurance and are there requirements that need to be satisfied?

Guaranteed Auto Protection (GAP) is a type of coverage and additional protection required by lessors, not lenders. When you have GAP, you have protection for when the car is totaled. The coverage will pay for the difference between the value of the car and the balance of the loan.

Since the car value depreciates, this coverage is critical. A majority of companies will buy a master policy and charge you a premium for the coverage in your payments. When this happens, you don’t have to buy GAP coverage separately. Read the terms of your agreement closely to see if there is a GAP waiver written into it.

How can you tell if leasing is the right way to go?

You have to consider the true cost to lease a car before you decide if it makes the most financial sense. First, price your out-of-pocket expenses to acquire the vehicle then consider how much the car will cost you per month — factoring in maintenance and insurance costs.

It’s best to price the cost of insurance on a specific model before you buy it. Call the leasing companies in your area to find out how much insurance is required. You should also ask about maximum deductibles. Once you know the requirements, you’ll be able to price the cost of insurance on a leased car.

The easiest way to determine how much you’ll pay for insurance on a leased car is to use an online quote comparison tool, and to shop among dealers. By soliciting quotes on a brokerage-style tool, you can see which cars have lower insurance premiums than others. It will also help you see what your financing options are in one convenient location, though you may have to speak with someone to figure out the details of the offered leasing agreements. After you compare rates however, you can compare the monthly payments to lease your favorite models. You’ll be able to view the monthly cost, and what level of coverage you’ll need to lease the vehicle of your choosing.

Enter your zip code into our FREE comparison tool below to get started!

References:

  1. http://www.naic.org/documents/consumer_alert_understanding_auto.htm
  2. http://www.iii.org/article/what-gap-insurance
  3. http://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html
  4. http://www.aol.com/article/2010/12/14/consumer-tip-before-you-lease-call-your-car-insurance-company/19712788/
  5. http://carinsurance.about.com/od/CarLoans/a/Does-Financing-A-Car-Affect-Your-Car-Insurance.htm
  6. http://www.nasdaq.com/article/how-much-coverage-does-a-leased-car-need-cm219840
  7. http://www.360financialliteracy.org/Topics/Insurance/Cars-and-Auto-Insurance/State-by-State-Minimum-Coverage-Requirements
  8. http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0300-0399/0324/Sections/0324.021.html
  9. http://www.edmunds.com/car-loan/gap-insurance-how-it-impacts-your-car-loan-or-lease.html
  10. http://www.iii.org/article/insuring-leased-car
  11. http://www.consumerreports.org/cro/2012/12/buying-vs-leasing-basics/index.htm