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 Edmunds 2020 Automotive Industry Report, car leasing volume grew from just over 1 million in 2009 to 4.3 million in 2019. Car leasing is on the rise, and although you do not own a leased car, there are still important car insurance coverages to consider to make sure you are protected when leasing a car.
What Kind of Insurance Does a Leased Car Require?
Leased car insurance and financed or owned car insurance are not that different. The main difference is that financed or leased cars will have to include the name of the lienholder or leasing company as a named insured, whereas owned cars do not have to name a third party like a bank or leasing company. The lease or finance company has ownership of the car (until you pay off the loan or balance), so they are in a position to dictate the coverage required by your insurance.
Car Lease Agreements and Insurance
When you have a leased car, you usually can not buy the minimum car insurance required by law. The lease agreement will contain clauses that require you to purchase collision and comprehensive insurance coverage on the car. This is because the leasing company wants to make sure that if something happens they will be fully compensated for any loss or damage to the car. Buying the comprehensive and collision car insurance on a leased car also helps you protect yourself and make sure your contractual obligations under a lease are met 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.
Tips About Insurance When You Lease a Car
- Because you do not own the car outright and are only leasing it, you likely can not take minimum car insurance.
- If you purchase GAP insurance, you must carry full insurance coverage like comprehensive and collision coverage with your insurance company for GAP insurance to pay out.
- Don't get confused about the deductible on your leased car insurance, Gap Insurance does not cover your car deductible.
- Don't confuse gap insurance with wear and tear insurance (i.e., insurance that covers typical wear and tear damage to a car), mechanical breakdown insurance or your leased car's warranty.
Do You Have to Get Gap Insurance on a Leased Car?
Gap insurance is a good idea for leased cars in some circumstances. To learn more about leased cars and whether you need GAP Insurance Coverage, read our article on Gap Insurance Requirements and Your Rights.
How Gap Insurance Works for a Leased Car
If you have a total loss or theft of your car, your car insurance will only pay the actual market value of the car at the time of loss. In most cases, because new cars depreciate the most in the first few years, the market value of the leased car can be lower than what is still owed on the lease contract. GAP coverage can help you cover the difference between what the insurance company will pay you at the time of loss, and how much you owe the leasing company so that you do not get stuck paying the difference.
The Bottom Line
Although you do not own a leased car you are responsible for returning it at the end of the lease in good condition and without damage. Having the right insurance will help protect your leased car and make sure you do not end up paying for damages out of your own pocket if you have an accident, or if the car gets stolen.