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CAR Insurance
CAR INSURANCE INSIGHTS

There can be many benefits to leasing a car but don’t forget to check into car insurance costs before you make your final decision.

You might lease a car to try and save money in the long run, but it’s important to consider insurance costs for a leased car, too.

You may be thinking about the fact that you’ll probably pay a smaller amount of money every month than a car payment. You’re excited, knowing that you probably won’t have many repair costs since everything should be under the vehicle’s factory warranty. And if you plan to lease a new car every few years, well, you’re always driving a new car.

Leasing a car has its share of benefits. But insurance is usually not one of them. Your insurance will probably be more expensive when compared to a vehicle you own, so it’s good to know that before you sign the lease. Here, we’ve covered everything you’ll need to know about insurance for a leased car.

KEY TAKEAWAYS
  • Insuring a leased vehicle is usually, but not always, more expensive than insuring a financed vehicle.
  • Leasing companies typically require full coverage and gap insurance.
  • Insurance rates for leased vehicles varies just like insurance for any vehicle, based on various factors.
  • Whether leasing or financing, shop around and compare quotes to get the best coverage at the best price.

What is leasing a car?

Leasing a car is a fancy way of saying that you’re renting a car. It is more complicated than renting a car from, say, a rental agency. For instance, even though making rent payments on time generally doesn’t affect your credit; unfortunately, your lease-payment history does affect your credit.

But if you lease a car, you don’t own it, although, at the end of the leasing period, you will have the option to start financing the car so that you can buy it.

What are the benefits of leasing a car?

There are quite a few benefits to leasing a vehicle, depending on your situation. Here are some things you can probably look forward to:

  • Having lower monthly payments than you would with a loan on the same car
  • Your leased car will usually have a warranty which means you’re probably not spending much with a mechanic
  • You may save some money on sales tax
  • You are always driving a relatively new car

How to get insurance for a leased car

You’ll get insurance for your leased car in the same way you do for a car you finance. You’ll comparison shop and research car insurance policies and decide what you think is the best.

You’ll probably need to get the insurance before you drive off the lot. Ask your leasing company if you’re already paying gap insurance. Many leasing companies require motorists to pay for gap insurance. If there isn’t gap insurance on the car, you will want to get it – unless your idea of a good time is totaling your car and then having to spend a small fortune paying off a car you can’t drive.

Insurance requirements for a leased vehicle

You’ll probably have to get insurance before you drive your car off the lot. For starters, it isn’t your car. It’s the lenders. If you never buy it, you truly are renting this car. It has to be insured, and your lenders will insist on it being well insured. Every state is different in regulating car insurance, but expect to need the following types of policies:

Collision coverage

This pays for damages if you’re driving your car, and you get into a wreck with another vehicle or an object, like a food truck or a telephone pole.

Comprehensive coverage

This pays for pretty much everything you can imagine. If a tornado picks up your car and hurls it into a canyon (let’s hope you’re not in it), you’re covered. Or if your car is stolen, you’re covered.

Bodily injury liability coverage

This covers the medical expenses for other people in a car accident – the people in the other car or your passengers.

Underinsured and uninsured motorist coverage

Suppose another driver causes an accident, and that driver is underinsured – or worse, not insured – and your coverage doesn’t cover all of the damages that you would otherwise have to pay for. In that case, underinsured and uninsured motorist coverage means, “Hey, congratulations. You now are covered.”

Gap insurance

We addressed this above, but in a nutshell, let’s say that you’re in an accident, and your car is totaled, Your car is worth $10,000, so that's what your insurance settlement is but you owe the lender $13,000 on it. Are you prepared to pay the $3,000 out of pocket?

Gap insurance for leased cars, or a car you’re financing, for that matter, pays that extra $3,000 that you would otherwise be on the hook for. It sounds like a lot, paying the required insurance for leased cars, but it’s arguably worth the peace of mind knowing that if something terrible happens to your vehicle, you’re covered.

How much does car insurance for a leased car cost in my state?

Good question and there isn’t a perfect, specific answer anybody can give you. It all depends on what type of car you’re leasing, as well as the state you live in.

Insurance is governed state to state. There’s no real federal agency or even laws that regulate how car insurance should be handled. Virtually every state requires you to have car insurance. However, New Hampshire will let you skate by without it, if you can prove that you have the means to pay for damages if something happens (they take their state motto, “Live free or die” seriously).

So, the not very satisfying answer to “how much does car insurance for a leased car cost in my state” is – it depends on your state. However, you can use our car insurance calculator to get a better estimate of what to expect.

Factors that affect your leased vehicle’s insurance rates

Why do you pay what you pay for car insurance?

The factors that go into determining your leased vehicle’s insurance rates aren’t any different than a car you finance, except that lenders will insist that you have comprehensive and complete coverage (after all, it’s their car and not yours; you’re borrowing it).

Insurance underwriters take a look at factors such as…

  • Your credit score. It may not be fair or seem fair, but insurers tend to feel that if you’re making a mess of your finances, you may be more likely to wrap your car around a telephone pole.
  • Driving history. Well, that’s fair. If you’ve got 23 speeding tickets, an insurer has reason to think you’re kind of risk.
  • Years of driving experience. Have you been on the road for a couple of years? Or a couple of decades? Insurers will give a better rate to the experienced driver.
  • Where you live. Because every state regulates insurance differently, your leased car might be insured much cheaper in one state than another. You also might find that you’re paying more in a city where there’s a ton of traffic and more accidents than in a rural part of the country, with fewer motorists.

How to save on insurance for leased cars

As noted, you’re going to have to spend a decent amount on insurance for leased cars. That’s just how it goes when you’re insuring a leased vehicle. Still, here are a few ideas:

  • Comparison shop. If you want cheap insurance for leased cars or the best insurance for leased cars, you’ll need to check around and compare car insurance policies. You want to look for policies that don’t just have reasonable rates but offer discounts, such as driving several years without an accident.
  • Work with an insurer that has a telematics program. Those are the devices you plug into your car, and if you’re a good driver, your insurer will see that. It’ll receive data that you don’t speed like crazy, and you don’t brake hard. That said if friends call you “Ol’ Leadfoot,” this may not be an excellent strategy for you.
  • Pay your policy upfront rather than monthly. That can be a challenge for many people, but it can often save you around 5% off a policy.

Insurance for leased vs. financed vehicles

Your monthly premiums for a leased car will usually be higher than a financed vehicle. We used Allstate's Lease or Purchase Calculator to run a finance vs lease scenario.

If you finance $13,000 for 48 months at an interest rate of 5%, you will pay around $1460 less than if you leased that same vehicle. However, that was not always the case. When we kept the same terms but increased the financing amount to $24,000 per year, it actually resulted in about an $80 savings to lease instead of finance.

Frequently asked questions

Is car insurance higher for leased cars?

Yes, usually. If something goes wrong, and especially if the car is totaled, your leasing agency wants to make sure that they don’t lose any money on this lease.

Can you lease a car with insurance included?

Generally, no, you have to buy your own car insurance. That said, some lenders will include gap insurance within the contract. So, you may not need to purchase gap insurance.

What should I do with my auto insurance after the lease ends?

Contact your insurer. Here are the scenarios you’ll probably fall into:

  • You’re extending your car lease. Frankly, you probably can just keep making your payments.
  • You’re getting a new leased vehicle. If that’s the case, you need to let your insurer know – they’ll update everything, and you can watch your premiums go up or down. If they go up, of course, you may want to comparison shop and get back into the car leasing with an insurance mindset. In other words, look for a new car insurance policy for your leased car.
  • You’re purchasing the leased car. OK, great, but your insurer needs to remove the leasing company from the insurance.
  • You’re no longer going to lease or own a car. Well, in that case, you probably need to cancel your insurance, or you may want to inquire about non-owners car insurance, which covers people who drive cars but don’t own them (think: ride-sharing services). So either way, whatever you do at the end of your car’s lease, you’re probably going to be contacting your insurer.

Will leasing a car affect the cost of insurance?

It usually does. That’s because the lender wants to make sure that the car you’re driving – and that the lender may someday get back from you – is entirely and thoroughly covered in case of an accident, theft or natural disaster. However, when financing above a certain amount, it may actually be more expensive to insure a financed vehicle.

Do you have to have full coverage auto insurance to lease a car?

Yes. Lenders generally won’t allow you to drive off the lot until they know that you’ve purchased full coverage auto insurance which is comprehensive, collision and liability coverage at minimum. They want to know that if something happens to your vehicle while it’s in your possession, that they will get every dollar that’s coming to them. Lenders and car dealerships would probably see a lot of financial damage over the years if they made it a habit to allow motorists to lease cars without being fully insured.