Some folks love a lease. If you don’t drive much, or want to try before you buy, leasing can present a lower-cost vehicle option with worry-free maintenance, and no resale hassle when you’re ready for a new ride. All that said, the insurance discussion could be confusing. We’re here to iron out the details and set the record straight about insurance and leased cars.
First, Meet Requirements
No matter the car you lease, there are minimum insurance coverage requirements that you need to meet in order to drive your vehicle off the lot. These basic coverage limits will be dictated by your state. In addition, the leasing company will often require more far-reaching coverage. Remember, they own the vehicle. So just like you would want the best coverage for a vehicle you own, the leasing company wants to be sure that if the car is totaled, or they face a lawsuit, they have recourse.
Here are some of the typical types of coverage offered by a solid auto insurance policy:
Liability: pays for damages experienced by third parties
Bodily Injury Liability: pays for medical expenses from injuries sustained by third parties
Property Injury Liability: covers third party property damages
Uninsured and Underinsured Motorist: pays for accident-related costs when the at-fault driver doesn’t have enough or any insurance coverage
Collision: pays for vehicle repairs in the event of a collision
Comprehensive: pays for vehicle repairs from anything other than a collision
Check with your friendly neighborhood agent to see if these or other coverage options are required in your state.
Next, Fill In Any Gaps
As soon as you get behind the wheel and leave the lot with your brand new, leased vehicle, its value starts to drop. If after only a few months, you’re involved in a collision that claims the car, insurance will most certainly pay the leasing company. But the payout is typically based on current value, not purchase price. So if the vehicle is valued at $25,000 but it cost $30,000, the leasing company could be looking for that missing $5,000 from your pockets.
This is where gap coverage comes into play. It’s only necessary for the first few years of a car’s life, when the valuation and purchase price are upside down. When you lease a vehicle, you’re only paying for the depreciation–the difference in the vehicle’s price and how much it will be worth at the end of the lease (plus interest and fees). But someone had to pay for the vehicle in the first place. Leasing companies–financial institutions who finance the purchase–actually own the car and want to be sure that their investment is safe. Insisting on gap coverage is one way they may do this, but it’s also a good way to cover yourself in the event of a total loss.
Gap coverage is only applicable to the value of a vehicle, and can’t help to pay for medical bills, legal costs, or other things that are typically covered under a liability policy. That said, if you are leasing a new vehicle, it’s worth investigating. No one wants to make payments for a car they aren’t even driving anymore. And make sure to check with your leasing company that gap insurance isn’t actually part of your lease terms before taking out a separate policy.
Always Work With Experts
Whether you own or lease, it’s dangerous out on those roads. Insurance is a must to protect yourself and others. But sometimes the waters get a little murky and you need a pro to shed some light. Here at Zinc that’s our specialty. Get in touch for more insurance answers to your burning questions, and know that we’ve got your back, come what may. Call to speak to a bonafide human, or go digital to request your free custom online quote!
