Is Insurance More Expensive for Leased Cars?

Before you decide whether to buy a new car or lease one from a dealership, take the time to learn how your insurance may be affected. Insurance for a leased vehicle must meet standards specified in the lease contract, often resulting in higher premiums than a car owner may choose to pay. This guide to car leasing and insurance can help you better understand what factors go into the cost of insuring leased cars.

Does It Cost More to Insure a Leased Car?

Is insurance more expensive for leased cars? The answer is usually yes. It’s a factor to consider when weighing the pros and cons of leasing vs. purchasing a vehicle. However, leasing is generally less expensive than financing a car, which makes it an attractive consideration.

How Leasing a Car Works

When you need a new vehicle, it's critical to decide between leasing and buying. We’ll address the pros and cons of leasing a vehicle and then look at insurance for a leased car.

Leasing a vehicle rather than buying it can be an effective method for saving money on the cost of a brand-new car. Like a rental, a car lease lets the borrower drive a new car for a specified period. Like a car purchase, the borrower must make a downpayment, followed by monthly payments. Most vehicle leases run for about three years. At the end of your lease term, you may have an option in your contract to buy the car, extend the lease, or return the vehicle.

Unlike buying a car, a leased vehicle typically has lower monthly payments than financing the purchase of the vehicle. A lower payment is advantageous if you want to drive a car that is otherwise out of your price range. Car leasing allows drivers to drive newer cars consistently. Additionally, a leased vehicle remains under warranty the entire time you drive it, whereas maintenance and upkeep of a purchased car becomes your responsibility when the warranty is up. Because vehicle ownership remains with the dealership, the insurance on a leased car must meet the dealer’s standards.

Financial Considerations in Car Leasing

Leasing a car comes with some drawbacks. When the vehicle lease is up, you return the car to the dealership and do not see a return on the payments you’ve made. If you buy a car, you may be able to sell it at some point, recouping some of your investment. Without vehicle ownership, you can’t recover any money you pay toward the lease.

Additionally, many lease agreements place annual mileage limits on leased vehicles. If you exceed these limits, you can be charged for every mile driven over the allotted distance.

If you’re considering buying out the leased vehicle, exploring financing options is key. Local credit unions, such as California Coast Credit Union, often offer competitive rates and flexible terms that could help you save money.

Financially, the decision between leasing vs. buying a car comes from convenience vs. equity. Drivers who lease one car after another may benefit from lower monthly payments and reduced maintenance costs. Over the long term, you could spend more on constant monthly lease payments than you would by paying off a car purchase. You should also budget for higher insurance for the leased car.

Car Insurance Requirements for a Leased Car

The dealership will require insurance for the leased car to protect its assets. The lender may require that you have comprehensive coverage to cover loss or damage to your vehicle caused by theft, fire, earthquake, and other non-collision events. Many drivers pay more when insuring leased cars than when insuring vehicles they own. It’s not that a company charges more for the same insurance for a leased car as for a purchased one. Instead, many car owners drive with minimum coverage to reduce their monthly premiums.

However, when you lease a car, the dealership retains ownership. The dealership won’t risk the car’s value, so they also require collision coverage. Expect them to set higher liability coverage requirements for bodily injury and property damage than you might choose for yourself.

Legal Insurance Requirements

Whether leasing a car or driving your own, the law requires that you carry auto insurance. Although it varies by state, there are minimum coverage standards required for car insurance. Minimum coverage required by law usually includes a certain amount of liability coverage. This coverage helps pay for damages to another person or their property if you cause a car accident.

Suppose your insurance coverage only partially covers your liability. In that case, the injured party can sue the driver and the vehicle owner for damages. For this reason, dealerships often require insurance for leased cars, including bodily injury liability limits of $100,000 per person and $300,000 per accident and a property damage liability limit of $50,000 per accident. They do not intend to be on the hook for your accident.

Differences Between Car and Leasing Insurance

The insurance for a leased car differs from insuring a vehicle you own due to the car’s ownership. The car owner determines their risk tolerance and the vehicle’s insurance coverage standards. While you might be willing to roll the dice with minimal coverage on a car that you own, the dealership that owns the vehicle you lease is not.

What Insurance Do You Need for a Leased Car?

Dealerships that lease their vehicles retain ownership. That puts them in the position to require more complete coverage for the insurance for a leased car. The better coverage naturally raises your monthly premium. Insurance on a leased car typically includes the following coverage:

• Comprehensive: This type of insurance covers damages for non-motor vehicle accidents, such as theft, vandalism, fire, weather events such as floods and hailstorms, and other incidents that don’t involve one car hitting another vehicle or object.
• Collision: When your car is damaged in an accident, collision insurance covers repairs. Leasing companies may not require a large deductible for collision insurance, but a lower deductible drives up your insurance premium.
• Bodily Injury Liability limits of $100,000 per person and $300,000 per accident
• Property Damage liability limits of $50,000 per accident
  Keep in mind that while most states mandate a liability limit for bodily injury or property damages, a leasing company usually will not require a higher amount of insurance. You can opt for more coverage if your assets are significant. For example, if you’re at fault for a serious injury, it’s not unusual for medical expenses to exceed $100,000. If not sufficiently insured, your assets could be at risk if the injured party files a personal injury lawsuit.
• Gap insurance: While optional for an auto loan, gap coverage may be required when leasing a car. Since cars start depreciating the minute you drive them off the lot, a vehicle totaled soon after the lease starts can mean the lessor can’t recoup the total loss without a gap policy in place. Gap insurance covers the difference between what you owe on your lease and the depreciated value of the vehicle at the time of the accident or theft.

Further, the lender may require lower deductibles than you might choose yourself, which can also result in higher premiums.

Factors That Affect Car Insurance Rates

Various factors affect your auto insurance rates. The following may affect the amount you pay for car insurance, whether for owned or leased vehicles:

• Location: Location, location, location is more than a real estate mantra. It also pertains to the amount of car insurance you can expect to pay. If you live in an area with a high volume of traffic accidents, theft, or vandalism, expect to see that fact reflected in your auto insurance premiums.
• Type and model of vehicle: The more expensive the car, the higher your insurance costs. Some cars will cost more to repair when damaged than others. That’s another key factor in determining auto insurance rates. So is your vehicle’s susceptibility to theft. Certain models are targeted by car thieves more than others.
• Safety features: Your car’s safety features can provide discounts, lowering your car insurance rates. Features such as anti-lock brakes, anti-theft devices, collision warnings, and blind spot detection protect your vehicle and reduce your rates.
• Driving record: A good driving record can earn you an insurance discount. A less-than-stellar driving record, including a history of moving violations or accidents, raises rates, at least temporarily.
• Mileage: The insurance company will want to know how often and how far you tend to use your car. Expect to pay higher insurance rates if you commute a long distance or travel a great deal. If your vehicle is used primarily to run local errands and travel short distances, you may qualify for a lower insurance rate.
• Age: Younger, more inexperienced drivers are more likely to get into accidents than more seasoned motorists.
• Coverage levels: The types and amount of coverage you choose impact your auto insurance premium either positively or negatively.
• Credit: There are many reasons to have a good credit score, and car insurance costs are one of them. In some states, car insurers link your credit score to your insurance rate. Statistically, drivers with poor credit tend to file claims more frequently than drivers with high credit scores.

Insurance on Leased Cars FAQs

Is Insurance Higher When Leasing a Car?
Dealerships require a high level of insurance protection on a leased car. Policies offering more protection can have higher monthly premiums than policies providing less protection. Since monthly lease payments are typically lower than financing payments on a vehicle purchase, the savings may offset the premiums for the more comprehensive coverage.

How Much is Insurance on a Leased Car?
The cost of insurance for a leased car, like any vehicle, is based on a series of factors. Chief among them are:

• The year, make, and model of the car
• The vehicle’s mileage
• The policy coverage
• The driver’s safety record and years of driving experience

The best way to learn how much you’ll spend on insurance for a leased car is to get a free quote for your leased vehicle.

Is it better to lease or finance a car?
Whether leasing vs. buying a car is better depends on your needs and circumstances. Many find it less expensive to lease a vehicle in the short term. The choice to lease is due to the smaller downpayment, lower monthly payments, and lower maintenance costs for a leased car compared to purchasing. However, some prefer retaining equity in their vehicle and the right to drive as much as they like without incurring mileage penalties that can occur with a car lease.

Does leasing a car build your credit?
Leasing a car or financing the purchase of a vehicle and making your payments on time builds your credit. Making timely payments on your financial obligations is the key to building and maintaining a solid credit score.

What is lease protection insurance?
Lease protection insurance protects the lender from financial loss if the lessee cannot make their payments due to specific circumstances. For example, if you lease a car and then cannot make your payments due to involuntary job loss, death, disability, or the loss of the vehicle, the lease protection insurance pays off the lease.

Wawanesa Auto Insurance

Whether you own your car or need insurance for a leased car, trust Wawanesa. Our friendly agents take the time to answer your questions in full so you can make the best decisions for your family’s protection. Call us, and let’s see how we can save you money. Or check online to see if you’re eligible for our car insurance discounts.