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Leased Car Insurance

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Leasing is an excellent choice for individuals seeking the latest car models at a reasonable cost when it comes to acquiring a new vehicle. Opting for a lease translates to reduced monthly payments, allowing you to drive a car that might exceed your budget's limit. Typically, the lease agreement encompasses maintenance costs, and once the lease term ends,

you can conveniently switch to another leased automobile. With more consumers choosing leases over loans compared to previous years, the trend of leasing's popularity is expected to continue to rise.

Leased car insurance

What does it mean to lease a car?

In essence, a car lease is a type of financing arrangement where customers pay to use a vehicle for a specified period without taking out a loan to eventually own it. When the lease term ends, the vehicle is returned to the dealership. Compared to purchasing a car outright, leasing typically results in lower monthly costs because the lessee is essentially renting the car for a set time, usually 36 months, with options for different lease lengths.

This often enables motorists to acquire a higher-end vehicle for the same amount of money as financing the full purchase price. When the lease ends, the car is either sold to cover the remaining cost for the lessor or offered to the lessee for purchase at a pre-determined residual market value, which is lower than the original purchase price.

Many people opt to lease a car because the monthly payments are typically lower than car payments, and they only pay for the vehicle's depreciation, interest charges, taxes, and fees during the lease term. However, it's important to note that when you lease a vehicle, you don't own it; you're paying for the right to use it for a fixed period and mileage. Let's explore what it's like to drive a leased car.

Advantages of car leasing

  • Affordability
  • Often covered under warranty for length of term, meaning no extra maintenance costs.
  • Most often you’re driving a vehicle when its newest, meaning fewer maintenance issues
  • Newest vehicles
  • No worry about depreciation

In summary, leased vehicles are typically the newest models and have lower payments.

Insurance on a leased car

If you're considering leasing a car, keep in mind that insurance coverage is mandatory and you won't be able to take possession of the vehicle without it. Insurance requirements vary by state, and the necessary coverage levels depend on the state where the car will be registered. Additionally, your leasing company may have its own insurance requirements that you'll need to meet.

One crucial aspect of insurance when leasing a car is that you must list the leasing company as an additional insured and loss payee. Since the leasing company owns the vehicle, they're entitled to any insurance payout for damages to the leased car.

Coverages often required by state

Each state sets their own minimum coverage requirements, called policy limits, which caps how much compensation or benefits an insurance company will pay in the event of a claim payout, but nearly all require at least liability coverage. There are two primary forms of liability coverage:

  • Liability – Bodily Injury (BI) makes life a whole lot easier for other parties involved in a car accident if you were at fault. This type of liability coverage takes care of loss of income, medical bills, legal fees, pain and suffering, and, in a worst-case scenario, funeral costs for the injured parties. “Injured parties” in this case can refer to the other driver and their passengers, as well as any bystanders or pedestrians who were injured as a result of the accident.
  • Liability – Property Damage (PD) refers to the amount that your insurance company will pay towards the other party’s car repair costs, or any property damage (fences, landscaping, telephone poles, etc), if you cause an accident.

Some states also require uninsured/underinsured motorist protection as well as personal injury protection (PIP).

Remember – the policy limit minimum set by the state may not be enough to cover all of the damages resulting from an at-fault accident and opting for higher liability limits could protect you and your assets from legal action.

Coverages often required by leasing companies

Similar to when a vehicle is financed through a banking institution, lessors often require you carry first party coverage on a leased vehicle in the event that it is damaged. The coverages most often required are:

  • Collision coverage – pays for damages to your vehicle resulting in a collision with an object or a vehicle.
  • Comprehensive coverage – pays for damages to your car caused most things other than a collision with an object. For example, flood damages, animal hits, theft, damage from falling objects, and vandalism are often covered under comprehensive coverage.

High liability limits and low deductibles

Lastly, it’s worth noting that leasing companies often have minimum limits and maximum deductibles for each type of insurance where that applies.

For example, General Motors (which includes Chevrolet, Buick, GMC, and Cadillac) requires a collision and comprehensive deductible of $1,000 or lower on all of their leased vehicles. Mercedes’ is higher, at $2,500, presumably because they cater to a clientele that can probably afford the out-of-pocket expense.

Is insuring a leased car too expensive to be worth it?

Since the insurance requirements for a leased car are typically greater, it can cost more to insure a leased vehicle than a financed or owned vehicle. However, leasing a vehicle may give you lower monthly payments than financing, and maintenance costs are usually covered, erasing that out of pocket expense, so car payments and insurance rates are a trade-off.

Leasing a car is a great way to be able to drive a newer vehicle with all the bells and whistles, with a lower monthly payment and no maintenance costs. Insuring it shouldn’t be a hassle, and we make it easier than ever using our coverage wizard tool. Or, if you’re ready to make the move, consider getting a quote today.

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