In many but not all cases, car insurance is more expensive for a leased car (or financed car) than it is for a car you own. We explain why.
Car insurance requirements if you lease a car
- Your lease agreement will require you to pay for higher liability car insurance limits — how much the car insurance company will pay out to repair damage to another driver’s car or others’ injuries when you cause an accident.
- The amount of coverage mandated is usually 100/300/50. That means $100,000 for medical expenses for one person and up to $300,000 per accident, with $50,000 to cover property damage. This coverage is much higher than what is required under state laws. For example, in California, you can drive legally with just 15/30/5.
- You will also be required to buy collision coverage, comprehensive coverage, and/or gap insurance, otherwise optional.
- Comprehensive pays to replace stolen cars and covers damage from fire, vandalism, animal strikes, flooding, and fallen objects. Collision insurance covers damage to your car from accidents. Both have deductibles. That’s the amount you pay before your insurance kicks in. Deductible amounts are usually $250, $500, or $1,000. The higher your deductible, the lower your rate. You typically have a deductible of no more than $500.
Insurance coverage when you buy a car without a loan
- You can buy less coverage down to the state minimum liability requirements.
- You’re not required to buy collision or comprehensive. (If you’re buying a new or expensive car, it should be noted it is often recommended that you choose high limits with collision and comprehensive.)
Coverage when you finance a car
- Your lender will require you to carry comprehensive and collision in addition to liability coverage.
- The lender may set limits on the amount of your comprehensive and collision deductibles.
- Unlike a lease agreement, your lender usually won’t dictate high liability limits.
Factor in your insurance costs when deciding to lease a car
In simplest terms, car insurance prices depend heavily on what level of coverage you buy. When you lease a car, you’ll be required to pay more for coverage.
If you’re going from a liability-only policy to a fully loaded policy needed for a leased vehicle, you could easily be spending thousands more each year on car insurance.
Leasing a car may seem like the cheaper option at first glance — after all, leasing typically means you have lower monthly payments for a vehicle than you would if buying a new car outright. But before signing on the dotted line, look at all the costs, or you could be wishing for three long years that you made a different choice.
— Michelle Megna contributed to this story.
