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Understanding Car Insurance for Leased Vehicles

The decision to buy or lease a car involves weighing several benefits and drawbacks, including short- and long-term costs. One cost you might not consider is the insurance coverage. While a vehicle won’t be more expensive to insure simply because it’s a lease, your leasing company may require coverage levels that a lender wouldn’t, which could increase your rates. Here’s what you need to know.

Does It Cost More to Insure a Leased Car?

When obtaining auto insurance, you won’t be charged more for leasing a car instead of buying it. However, leasing companies typically have stricter insurance requirements because they own the vehicle outright. As a result, insurance coverage on a leased vehicle is typically more expensive than a policy for a vehicle you’ve financed with an auto loan.

That said, lease payments are typically lower than auto loan payments, so leasing may still be a more affordable option in the short term. Unlike an auto loan, however, a lease term won’t automatically end with you taking ownership of the vehicle.

What Insurance Do You Need for a Leased Car?

Almost every state requires that you have some form of car insurance if you own a vehicle. When you lease a car, however, you’ll need more than just the legal requirement. Here are the coverages you can expect to get:

• Collision coverage: Pays for damage caused in an accident with another vehicle or object. Leasing companies may require a low deductible, which can increase your premium.
• Comprehensive coverage: Pays for damages caused by things like theft, weather, vandalism, fire, animals, and other acts of nature. Leasing companies may require a low deductible.
• Liability coverage: Covers medical expenses for bodily injuries sustained in an accident where you’re at fault, as well as damage to another person’s property. Leasing companies may call for higher limits, which can increase your rates.
• Gap insurance: Because new vehicles depreciate quickly, leasing companies may require gap insurance to help recoup the vehicle’s full value if it gets totaled.

Depending on where you live, you may also need to have medical payments coverage, personal injury protection, or uninsured motorist coverage. However, potential requirements for these types of coverage are determined by the state you live in, not your leasing company or lender.

Factors That Affect Car Insurance Rates

There are many factors that determine auto insurance rates. Here’s a quick summary:

• Location: Higher rates of vandalism, theft, and accidents in your area could result in higher premiums.
• Vehicle type and model: The value of your vehicle and its potential repair costs will influence your insurance rate.
• Vehicle safety features: Insurers may provide premium discounts for vehicles with advanced safety features.
• Driving record: A history of moving violations or accidents could result in a higher rate.
• Mileage: Long commutes or frequent driving can result in higher premiums.
• Age and gender: More experienced drivers tend to get in fewer accidents, and women typically qualify for lower rates.
• Credit: In most states, auto insurers use a credit-based insurance score to help determine your rate.
• Coverage levels: The types of coverage you choose and how much coverage you request will influence your premiums.

How to Save Money on Car Insurance

While there are some things about your insurance policy that you can’t control, there are steps you can take to save money, including the following:

• Shop around: Get quotes from several different carriers to determine which one offers the best deal.
• Select the right coverage: Consider your financial situation and comfort level with risk to determine the types of coverage, amounts, and deductibles you need.
• Bundle your policy: Many insurance carriers offer discounts if you bundle your auto insurance policy with other types of insurance.
• Look for other discounts: You may qualify for discounts if you have a good driving record, belong to a certain organization, or take a defensive driving course.
• Improve your credit: Good credit can keep an insurer from hiking your rates.

The Bottom Line

Because most leasing companies will require you to purchase more coverage on an auto insurance policy, insuring a leased car is often more expensive than insuring a car you own outright. However, you might still be able to bring your rate down by shopping around for rates and improving your credit.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you with confidence and expertise.

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