If you are thinking about leasing a vehicle, you may wonder what kind of insurance you will need to carry on it. Here’s a short guide to covering a car, pickup or SUV that you lease.
Physical Damage coverage
Just like if you took out a loan to purchase a car, the leasing company will require that you fully insure your vehicle with Comprehensive and Collision coverage. This covers the vehicle in case it is damaged or stolen. The leasing company requires that you carry this coverage so that if something happens to the car, they won’t lose their investment in your vehicle.
The leasing company may also specify that maximum deductible that you can carry, often $1000.
To protect their interest in the value of your vehicle, the leasing company will require that they be listed on your insurance as “Loss Payee” for the vehicle, just like a bank would if you took out a loan on your car. This means that if there is a claim for damage or theft of the vehicle, their name will typically be included with yours on the check, especially in the case of a total loss where the vehicle is not being repaired.
Buying Gap coverage is important for a leased vehicle. If you had an accident or other incident resulting in the total loss of your vehicle, your insurance carrier will normally only pay the current depreciated value. The problem is that this could be less than the payoff balance on your lease, leaving you holding the bag to pay more money to the leasing company even though you no longer have the vehicle.
Gap coverage fixes this problem by agreeing to pay off this difference between the value of the vehicle and the payoff amount. You will still be responsible for your deductible, however.
You can buy gap coverage two different ways. Your dealer will offer it at the time you are signing your lease, at the price of several hundred dollars added to the total lease cost. Or you can add it to your Auto policy, often costing $3 to $5 a month in additional premium. It’s likely that you will pay a lot less for Gap under your Auto policy than you will if you buy it from the dealer. Adding Gap to your Auto policy will also be easier at claim time, because you won’t have to deal with two different claim adjusters.
To learn more about Gap coverage, read our blog post about this topic.
When you take out a loan on a car, your bank doesn’t care what you carry for Liability coverage, as you are only putting yourself at risk if your limits aren’t high enough in the event of an accident. However, this is different when you lease a vehicle. Because your leasing company holds the title of the car, they are concerned about being sued if you get in an accident that might be your fault.
For this reason, your leasing company will require that you carry Liability coverage of at least certain minimum limits. Most often, the minimum required limits we see are 100/300/100. (If you are currently carrying limits less than this, you will have to increase the limits on all vehicles on your policy, as it is usually not possible to carry different Liability limits on different cars.)
In addition to being listed as Loss Payee like a bank, your leasing company will also ask to be named on your policy as an Additional Insured. This essentially means that you are sharing your Liability coverage with them. If your vehicle is involved in an accident and the leasing company is named on the resulting claim or lawsuit, your policy will protect them alongside you.
About the Author
Agent Ken Cobb
Ken is the owner and principal agent at Pine Country Insurance in Bemidji. Active in the insurance industry since 2000,Ken uses his years of personal insurance knowledge and experience to assist clients in customizing insurance coverage to fit their needs. Ken considers himself a "farmer" rather than a "hunter"; rather than focusing on writing a lot of new policies as quickly as possible, he works on cultivating long term relationships based on trust with his clients. When writing new policies and meeting for annual reviews, Ken spends time with his clients explaining and helping them understand their insurance, and he is also pleased to share his knowledge with his blogging audience as well.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.