So you’ve decided to lease a car instead of buying one. That’s a great way of not spending too much money at once while getting what you need. Leasing a car is a complicated process, involving a lot of paperwork, terms, and conditions, etc. But the complexities do not just stop there. You need to be aware of all the different car insurance policies you are required to have when you lease a car, and how much the policies cost.
Let’s look at all the details about the car insurance requirements when you lease a car, and see if getting car insurance for leased cars is more expensive than insurance for owned cars. First, let’s look at all the different auto insurance policies needed.
There is no escape from liability coverage. In every state in the US, it is mandatory to have liability coverage to legally drive a car, except in New Hampshire (people can choose to have one in New Hampshire, but it is not mandatory). So whether you lease a car or buy it, you must get this policy, not because the lessor wants you to have it, but because the State does.
Liability coverage has nothing to do with the car. It has two components that cover the cost of medical treatments and repairs of the other driver involved in an accident caused by you. The two components of this policy are:
Bodily injury: This part pays for the cost of medical treatments needed after the car accident. It has two parts, bodily injury per person (for one person, the driver), and bodily injury per accident (the maximum amount the insurance company will pay for medical treatments).
Property damage: This part of the liability coverage pays for the cost of repairs to the car or any other property that was damaged directly or indirectly due to the accident.
Each state has its minimum coverage limit, which is the maximum amount of money the vehicle insurance company will pay for the accident. For example, if you live in Indiana, the minimum coverage limit there is $25,000/$50,000/$25,000 for bodily injury per person, bodily injury per accident, and property damage.
Higher limits like such can increase the cost of your insurance policy. This is why you should look for the most affordable options with the best coverage by comparing various plans online. Find the cheapest car insurance in Indiana and select the company that suits your needs the best.
Collision coverage or collision damage waiver is optional car insurance coverage. This policy covers the cost of repairs to your car, no matter whose fault the accident was. So if you get in a collision accident with another car, a tree, or a light pole, you can claim your collision coverage and get the insurance company to pay for the repairs.
While collision damage waiver is optional, you will be required to buy this policy because you do not completely own the car. Your lessor wants to ensure that if you crash the car, you should be able to pay for the repairs. So as long as you do not own the car completely, you’ll have to carry a collision coverage policy.
Another important but optional coverage is comprehensive. Just like a collision damage waiver, a comprehensive coverage policy pays for the repairs of your car, but different kinds of accidents. Comprehensive policy covers the cost of repairs for damages due to natural calamities.
Comprehensive coverage covers damages due to earthquakes, fires, floods, projectile damage, hurricanes, hailstorms, etc. It also covers damages due to riots, vandalism, animal attacks, etc. Comprehensive coverage also covers theft, so if your car gets stolen, this policy will reimburse you by paying the actual cash value of the car.
Since this policy covers the damages to your car, your lessor will require you to have comprehensive coverage. In case your car gets totaled in some natural calamity or stolen, you’ll get the actual cash value of the car. This brings us to the next policy your lessor might want you to have.
GAP insurance is the acronym for Guaranteed Asset Protection insurance and this is perhaps one of the most important insurance policies the lessors want you to have. Imagine that your car gets in a severe accident and gets totaled. Or it gets stolen. Since the car cannot be used, the insurance company will pay you for the loss.
The problem here is the money you get for the reimbursement. The auto insurance company will only pay you the actual cash value of the car, not the price you paid to buy it. The actual cash value is the current price of your car. It is around the amount you’d get if you sold it. This takes into account depreciation, market value, demand, condition, etc.
The actual cash value is always much lower than the price of the car when you bought it. If you are leasing the car, this means that not only you’re paying for the car, but also some interest in it. Let’s say the car’s cost is $25,000, but since you are leasing it, you’ll have to pay a little extra. So let’s say you’ll have to pay $28,000.
But if your car gets totaled after a year or two, you won’t get the entire $25,000 from the collision or comprehensive policy. So who pays the extra money? This is where you’ll need GAP insurance. This policy will pay the extra amount needed to clear the loan.
Are Leased Cars Expensive to Insure?
Leased cars can be expensive to insure, not because auto insurance companies care if the cars are leased or owned. The lessor might ask you to buy a policy with a higher coverage limit, way higher than the state-mandated limits. This higher coverage limit can increase the cost of insurance policies and make it expensive for you.