Car insurance for leased cars: A comprehensive guide

Today, leasing a car is a popular option instead of buying a new car. Still, while leasing helps you avoid the depreciation generally associated with car buying, that doesn’t mean you won’t need to protect your new car with adequate insurance.

When you lease a car, you agree to pay a monthly fee in exchange for using a vehicle. There are usually limitations regarding how many miles you can drive or how long you can lease the car, but it still can be much more affordable than buying a vehicle outright. Experian estimates that drivers save an average of $113 per month in payments when leasing a car.

Even though you may not own your leased car, you must still protect it with insurance. If you are leasing a vehicle, this is what you need to know about leased insurance to safeguard your new ride.

How does insurance work when you’re leasing a car?

Even though you may only drive a leased car for a limited amount of time, you will still likely be required to carry an adequate amount of insurance on a leased car for the time you have the vehicle.

If you decide not to purchase the car and return it at the end of the leasing period, the seller wants to ensure it can be sold on the automotive aftermarket. Leased car insurance helps secure that guarantee.

What are the insurance requirements when leasing a car?

Just like when you buy a car, you must have insurance when leasing a car before you can drive your new vehicle.

There is no set amount of mandatory coverage for leased vehicles. Instead, the amount of coverage you need for your leased vehicles depends on two main factors: your state’s requirements and the requirements of your leasing company.

State insurance requirements when leasing a car 

Every state has different requirements for car insurance when you lease your vehicle. The amount of insurance you need will depend on the state in which you register your vehicle.

Leasing company requirements for insurance

Most car leasing companies require drivers to carry several types of coverage:

• Collision coverage covers damages when you have a collision with another vehicle or object.
• Comprehensive coverage covers damage from other types of accidents, such as theft or falling objects.
• Bodily injury liability coverage is one of two forms of liability insurance, providing coverage for medical expenses. The average requirements include a minimum of $25,000 per person and $50,000 per accident.
• Property damage liability coverage will pay for medical expenses for those injured in an accident with an average of $10,000 minimum coverage per accident.

Common insurance requirements for leased cars

Regardless of how much coverage you buy, most companies require you to name the leasing company as an additional insured and loss payee on your policy.

Do requirements vary by leasing company?

Some companies may also have specific requirements for your leased vehicle, including uninsured and underinsured motorist and personal injury protection coverage. In the table below, you’ll see a few major automobile manufacturers and their insurance requirements on leases.

Auto insurance requirements by manufacturer

Before you decide on how much coverage to buy, consider the total value of your vehicle and what out-of-pocket expenses you may face if you total your car or experience a loss that exceeds your coverage.

How does gap insurance work on a leased car?

Gap insurance provides additional insurance protection.

Leased vehicles almost always benefit from the purchase of gap insurance because it protects the balance left between the total value of the car and what you have paid so far. For example, if you were to be involved in an accident that totals your car, your insurance company will only pay the current market value on your vehicle.

If your car has depreciated and your insurance company only values your car at $8,000, you will be responsible for paying for anything leftover from your lease buyout. If it costs you $10,000 to purchase your vehicle at the end of your lease, but your insurance company only pays you $8,000, you will be responsible for paying for that difference unless you have gap insurance.

Most insurance companies and dealerships will offer gap insurance as an add-on to your purchase. Be sure to compare prices and weigh the benefits of how this could help should the unthinkable happen.

How much does leased car insurance cost?

Just like insurance on a financed vehicle, the cost of leased car insurance depends on several rate factors, such as:

✓ Make and model

✓ Value of your car

✓ Any additional coverage, such as gap insurance

✓ Where you live

✓ Your age and gender

✓ Your credit score

The cost of your auto insurance will also depend on the insurance company that you choose. You should expect the cost of leased car insurance to be similar to that of full coverage insurance on a financed vehicle.

How much should I expect to pay for gap insurance?

Like leased car insurance, pricing for gap insurance can vary significantly.

The Insurance Information Institute (III) reports pricing for gap insurance only costs about $20 each year, while Progressive estimates pricing around $5 per month for a total of $60 annually. 

How your deductible affects the cost of insuring a leased car 

Your insurance deductible is one way to find flexibility in how much you pay for your leased car insurance. Your deductible is the amount you must pay upfront before your insurance coverage kicks in. When you choose a higher deductible, it lowers the amount of your monthly premium. However, if you choose a lower deductible, you will face higher monthly premiums.

If you want to save money on your insurance premium each month, you can increase your deductible. However, that means you must pay more out-of-pocket if you are involved in a car accident.

How to get insurance on a leased car

Buying insurance for a leased vehicle is similar to buying standard car insurance.

Pick your car: Before you can determine how much insurance you need to buy, you first need to know what kind of car you will insure and its total value.

Check state requirements: Every state has minimum car insurance requirements for every driver, so be sure to consult your state’s insurance requirements to ensure that you are in full compliance.

Inquire about leased car insurance: Once you decide on the right vehicle for your needs, talk to your leasing company about what insurance requirements are necessary for your specific make and model.

Decide on additional coverage. Some drivers may choose to purchase additional coverage, such as gap insurance. Your insurance company can help you determine what other protections you may need.

Shop auto insurance companies: Several of the best car insurance companies offer auto insurance for your leased vehicles. Shop around and compare quotes from multiple providers to find the cheapest coverage.

Obtain proof of insurance: After you purchase your policy, be sure to have your insurance company send proof of your insurance to you and your leasing company.

Once your insurance requirements are satisfied, you can legally drive your new vehicle off the lot and begin enjoying your brand-new car.

Where can I get the best insurance for a leased car?

There are several options to choose from when purchasing leased car insurance. Your dealership and leasing company will likely offer coverage, and you may even be able to buy coverage from your bank or credit union.

Several traditional insurance companies offer lease insurance:

• AIG
• AAA
• Allstate
• Ameriprise
• American Family
• Chubb
• CSAA Insurance Group
• Esurance
• MetLife
• Nationwide
• Progressive
• Safeco
• State Farm
• Travelers
• USAA

Coverage may be named as either gap insurance or loan/lease coverage.

How to save on leased car insurance

There are several ways to save on car insurance for a leased vehicle. Similar to traditional car insurance, insurance companies offer several discounts to help you lower the cost of those annual premiums.

• Bundle your policy: Many providers will offer an extra discount when you bundle your lease insurance with other policies, like your home insurance, renters insurance, or life insurance.
• Drive less: You can benefit from usage-based discounts when you have low mileage each year. Telematics-based discounts are available from Allstate, Progressive, and State Farm.
• Pay in advance: When you pay in full, several companies will offer an extra discount on your regular insurance premium.

What happens if you get into a car accident with a leased car?

If you are in an accident with a leased vehicle, there are certain steps you should follow to help ensure the best results on your claim.

1. Stop your vehicle: Be sure to find somewhere safe to pull over and remain at the scene until help arrives.
2. Call for help: Contact law enforcement for support, and call emergency medical personnel if there are any injuries.
3. Contact your leasing company: Most leasing contracts require that you notify your leasing company if you are in an accident.
4. Notify your insurance company: Your insurance provider can confirm coverage and help you with the next steps.
5. File a claim: Most companies offer online or mobile support to help you.
6. Pay your deductible: You must pay your deductible for your insurer to begin processing your claim.