Insurance for Leased Cars, What You Need to Know to Protect Yourself
You Have Good Leased Car Insurance, But Did You Find Out About Gap Insurance?
According to the latest Lease Market Report from Edmunds.com, the leading car shopping, and information network:
- Car leasing volume grew by 91% in the past 5 years
- One-third of millennials who got new vehicles in 2016, leased the new vehicle instead of purchasing it
- Lease payments averaged about $120 less a month than car payments
- Dealer financing has increased as leasing has increased, as opposed to more traditional cash financing or independent financing options.
With this kind of information, it is clear that leasing continues to be on the rise so it makes sense to look into some of the insurance related questions to leasing and car insurance.
What Kind of Insurance Does a Leased Car Require?
Leased car insurance and financed car insurance are not that different than fully owned car insurance. The main difference in the insurance is that financed or leased cars will have to name the lien holder or leasing company as a named insured.
Car Lease Agreements and Insurance
When you do not own your car outright like in the situation of a lease, you may want to think about how to protect yourself and make sure your debt is fully paid and your contractual obligations under a lease are fully covered in the event of an accident or total loss.
Here are some key things to consider when you choose insurance for a leased car, including the type of coverage you need, and some information about Gap Insurance.
7 Tips About the Insurance You Need When You Lease a Car
- Because you do not own the car outright and are only leasing it, you can not take minimum car insurance. You must carry full insurance coverage like comprehensive and collision coverage with your car lease insurance company for gap insurance to pay out.
- When you insure your leased car, you will have to let your insurance company know who the leasing company is. The leasing company becomes a named insured on the policy because they have an interest in the car since it is only being leased to you.
Before you purchase a gap insurance policy, make sure the gap coverage is not already included in the coverage provided by the lease company, dealership, or your car leasing insurance company. You can find this information in your leasing contract. If you need help figuring this out, this article can help.
- Don't get confused about the deductible on your leased car insurance, Gap Insurance does not cover your car deductible.
- Check to see if your lease down payment is covered by the gap insurance.
- Don't forget that you can purchase gap insurance after your lease start date.
- Don't confuse gap insurance with wear and tear insurance (i.e., insurance that covers typical wear and tear damage to a vehicle), mechanical breakdown insurance or your leased car's warranty. Neither of these types of insurance policies is gap insurance policies and will not help you if your car is totaled or stolen.
Do You Have to Get Gap Insurance on a Leased Car?
Gap insurance is a good idea for leased cars in some circumstances. While getting the proper car lease insurance from your insurance broker or agent is important, your leasing insurance does not cover a gap that exists in every leased vehicle.
This gap can occur if you total your leased car, if it gets stolen, or is a "total loss" in a claim. To learn more about leased cars and whether you need Gap Insurance Coverage, read our article on Gap Insurance Requirements and Your Rights.
Where to Purchase Gap Insurance
The data on dealer financing shows us that many people are leasing and financing their leased vehicles at the dealership.
You may have many options to find Gap Insurance, learn more about where you can purchase Gap Insurance here to make sure you get the best price, and coverage.
How Gap Insurance Works for a Leased Car
Your car insurance will cover the depreciated market value at the time of the collision. In most cases, because lease payments are usually lower than if you were buying the car and because all new cars depreciate the most in the first few years, the market value of the leased vehicle is much lower than what is still owed on the lease contract. That said, you are still responsible for that difference in terms of what the insurance company will pay and what is still owed on the lease: that amount, or "gap," is what gap insurance covers.
How To Figure Out The Gap for Gap Insurance
The formula for calculating the gap you would want to cover in an insurance claim is as follows: what you owe for lease agreement (-) the insurance company payment = amount you are still responsible for, which could end up being in the thousands of dollars.