Car Insurance

How does Lease Car Insurance Work?

About a third of new cars are leased instead of purchased outright every year. This statistic isn’t surprising, considering that lease payments are generally lower than monthly payments for financing a new car.

Every car on the road requires auto insurance, so let’s take a look at the rules for insuring a leased car.

Basics of Leasing and Car Insurance

Leased cars can be insured the same way as any other car, except that, like a financed car, there will be another party named as an insured party: the leasing company. The leasing company is still the owner, so they have an interest in your coverage.

You’ll have the same options as far as kinds of insurance, but you may want to consider a few things that you wouldn’t have to if you owned your vehicle outright.

Consider your Lease Agreement

What are your insurance obligations according to your lease? It may or may not have certain requirements. Consider what you might owe if something were to happen: what are your potential expenses?

Liability Coverage

U.S. auto insurance laws are set by state, but currently, every state requires liability coverage. This helps cover the other person’s expenses if you’re in an accident and cause injuries or property damage to someone else.

Uninsured or Underinsured Motorist Coverage

Uninsured and underinsured motorist coverage may also be required depending on where you live. If you’re injured or your property is damaged by someone who doesn’t have insurance or whose insurance doesn’t cover your bills, this can help you with your costs.

Collision Coverage

Your lease may require collision coverage to pay for repairs if you hit another vehicle or object while driving.

Comprehensive Coverage
Your lease may require comprehensive coverage to pay for repairs if your vehicle is damaged but not in a collision. Things like vandalism, a falling tree branch, or weather damage can be covered here.

What about Gap Insurance?

Leased vehicles may have a gap in basic insurance coverage. Sometimes this gap is covered as part of your lease, so make sure to check before you purchase it. If you total your leased car or it’s stolen, it’s considered a “total loss” and may not be covered.

A full coverage insurance policy generally covers the depreciated value of your car at the time of the loss. The depreciated value may be less than what you owe on the lease, in which case you’d still be responsible for the difference. Gap insurance covers the difference so you’re not left with the bill.

Minimum Coverage isn’t an Option

When you don’t own your car outright, you probably can’t get minimal coverage. Your lease agreement may require you to have full insurance, including comprehensive and collision coverage, in case your car is totaled.

Understanding Your Car Insurance Policy

Car insurance is a legal requirement for drivers in most states, but understanding an auto insurance policy is not an easy task. It’s important to know what your coverage includes now whether you’re choosing a new policy or you have one that you’ve never (or rarely) used, before you’re in an accident, so we’ve put together a basic explanation to help you get started.

Liability Coverage

Generally, liability coverage is the minimum required insurance. It covers accidental damage to property or personal injury caused to an accident to the other party involved in a crash but not for you, your vehicle, or your passengers.

Injury and property damage can include medical expenses, lost wages, property in addition to a damaged vehicle, or court costs, depending on your policy.

Collision Coverage

When your vehicle is damaged in a collision with another vehicle or an object, this covers the cost to repair it, up to your policy limit.

Comprehensive Coverage

If your vehicle is damaged from something other than a collision with another vehicle or an object, this covers the cost to repair it, up to your policy limit. Comprehensive coverage includes things like vandalism, theft, floods, or storm damage.

Personal Injury Protection (PIP)

Sometimes, PIP is required by law. It covers your medical costs if you’re injured in an accident.

Uninsured Motorist Coverage

If you’re in an accident with an uninsured driver and they can’t afford to pay for things like your medical costs or repair bills out of pocket, this covers it. It’s meant to cover what the other driver’s liability insurance would have covered if they had it.

Underinsured Motorist Coverage

Similar to uninsured motorist coverage, underinsured motorist coverage covers what the other driver’s liability insurance is unable to cover. If the other driver is underinsured, it means that the money they owe you is beyond their policy limit, and this policy kicks in there to make up the difference.

Other Kinds of Insurance Coverage

There are many kinds of auto insurance coverage available, and you can often choose to combine them in personalized ways. Your insurance provider can help you to understand them better!

If you are in an accident, remember that your insurance policy may or may not cover the cost of the damage, and the other driver’s insurance may or may not, depending on the policies and on the accident. However, your insurance company can never tell you where to have your vehicle repaired – that’s always up to you.

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