How does leasing a car affect my insurance?

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  • 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 at 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, most lessors require a minimum amount of cover which may increase your cost.

About four and a half percent of new car lessees get out of their contracts 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. Shop around using our FREE comparison tool to find the right coverage!

Why does leasing a car dramatically affect your insurance premiums?

If you go from owning an old junker to a brand-new luxury model, you can expect your rates to go up. If you’ve decided the most affordable way to drive a luxury vehicle is to lease it, 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.

Required 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 that you have comprehensive and collision coverage.

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. When you go from a liability-only policy to a full coverage policy, premiums will go up.

Less Flexibility with Your Deductible

One way to keep a hold of your premiums is to raise your deductibles. Unfortunately, if you’re relying on high deductibles to keep your premiums 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.

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.

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

GAP Requirements and How to Satisfy Them

Guaranteed Auto Protection (GAP) is an added 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 To Decide If Leasing Makes Financial Sense

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. By soliciting quotes on a brokerage-style tool, you can see which cars have lower insurance premiums than others. After you compare rates, you can compare the monthly payments to lease your favorite models.

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