How Does Insurance Work For a Leased Car?
To lease a car, you must secure insurance compliant with your state’s minimum requirements and the unique specifications of your auto lender. State-mandated coverages typically include:
- Bodily injury liability
- Property damage liability
- Uninsured or underinsured motorist coverage (less common)
Meanwhile, many leasing companies ask customers to take out more extensive auto insurance policies that guarantee reimbursement for various damages. These often include:
Though only occasionally required, insurance for a leased car can also include personal injury protection (PIP) or gap coverage to further absorb the potential financial losses from a moderate to severe accident.
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What Insurance Is Required?
Insurance for leasing a car always depends on the state you reside in and the company providing the vehicle.
From The State
Every state imposes unique car insurance requirements, most commonly involving two forms of third-party liability coverage:
- Bodily injury liability insurance: Pays the medical expenses accrued by other drivers and passengers. Traditional limits start at $25,000 per person or $50,000 per accident.
- Property damage liability insurance: Pays to repair other people’s property, most often their vehicles. Most states require at least a $10,000 limit for every accident.
However, some states impose higher liability limits and additional coverages. For example, Georgia requires $50,000 in bodily injury and $25,000 in property damage liability per accident.
From The Leasing Company
In addition to state-mandated liability insurance, most leasing companies require customers to purchase the following protections:
- Collision coverage: Pays for damages to the leased vehicle resulting from at-fault contact with another car or object.
- Comprehensive coverage: Pays for many non-collision related damages, typically occurring from “acts of nature” like theft, natural disasters, and falling objects.
Likewise, many auto lenders encourage clients to purchase more liability coverage than state laws mandate, typically at least $100,000 of bodily injury coverage per person, $300,000 per accident, and another $50,000 in property damage protection. Combining liability, comprehensive, and collision insurance forms what insurers call a more inclusive policy.
Additional Forms Of Coverage You May Consider
In addition to state and company-mandated benefits, many drivers opt into tort and gap insurance policies to ensure more extensive financial protection.
While 38 states follow the tort – or fault-based – insurance system, the remaining 12 encourage “no-fault” insurance practices. However, three of these states – Kentucky, New Jersey, and Pennsylvania – allow drivers to choose between tort and no-fault coverage. A full-tort policy allows afflicted motorists to sue at-fault drivers for medical expenses, property damage, lost income, and even pain and suffering. By contrast, limited tort plans cost less but only help members collect reimbursement for specific damages and injuries.
In abiding by the most common state requirements, most leasing customers purchase compliant policies and participate in the tort insurance system. After an accident, each driver’s insurance company will work together to determine negligence, fault, and proper financial recourse.
Gap coverage pays for the difference between the amount owed on a vehicle and the payout following an accident. For example, if you lease a new car valued at $50,000 and total it one month later, your insurance company may only agree to reimburse $45,000 due to weeks of depreciation. Gap insurance would cover this $5,000 difference to absolve you from debt on a vehicle you can no longer operate.
Given rapid depreciation rates, drivers who lease brand-new cars have the most to gain from gap benefits. Though some leasing companies only require liability, comprehensive, and collision coverage, others mandate or automatically include gap protection as part of your overall insurance package.
Is Leased Car Coverage More Expensive?
Whether a driver leases, finances, or owns a car should not technically affect how insurers assess their risk of an accident. However, vehicle owners typically only have to purchase minimum state-mandated liability benefits. Insurance for a leased car typically must include comprehensive and collision coverage and even higher liability limits, which can quickly increase costs.
Premium rates can also increase significantly if your leasing company requires a low deductible policy. The national average cost for a full coverage auto insurance policy on a leased vehicle currently falls at $167 monthly. Comparatively, minimum legal coverage on an owned or financed car evens out to about $61 every month.
How Do Insurance Minimums Vary By Leasing Company?
All leasing companies set unique insurance minimums, often centered around the overall value of their vehicles. The chart below details mandated coverages from 4 leading auto leasers, anonymized for the purposes of this article:
Bodily injury liability: $100,000 per person/$300,000 per accidentPersonal property liability: $50,000 per accidentFull comprehensive and collision coverage with a max deductible of $1,000
Same as Company #1
No liability requirements.Full comprehensive and collision coverage with a max deductible of $1,000
Bodily injury liability: $100,000 per person/$300,000 per accidentPersonal property liability: $50,000 per accidentFull comprehensive and collision coverage with a max deductible of $2,500
Putting It All Together
Leasing a vehicle can offer many advantages, including lower monthly payments, hassle-free exchanges, and cheaper repairs. However, leasing customers typically must purchase more coverage insurance policies to be compliant with their overseeing company’s regulations. These additional restrictions often lead to higher monthly premiums than one would generally encounter by enrolling in state minimum liability limits.
Before opting for a leased car, compare companies and ask about variable fees and required insurance coverages that could significantly affect your finances. Even if your leasing company allows for minimum coverage, consider additional protections like gap benefits, PIP, or tort insurance to maximize your financial security following an accident.