Do I need full coverage insurance to lease a car?

Owning and driving a car comes with a lot of expenses, some that are never fully considered before owning or leasing a vehicle. Among other things like gas and car maintenance, car insurance premiums can quickly add up and become unaffordable for some drivers.

If you are on the hunt for a better car insurance premium, consider using an online price comparison tool. The Internet has made it much easier for people to price compare when it comes to receiving an auto insurance quote.

Although it may be tempting to forgo certain types of car insurance coverages, it is never a wise thing to do, especially on a leased vehicle. In doing so, you could be breaking the law and breaking your lease agreement.

If you have a leased vehicle, you may be wondering what types of coverage you are legally or contractually required to have in place.

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Leasing Your Vehicle

In today’s new car market, 25 percent of auto sales can be attributed to leases. Leases have become more generous and cheaper over the last several years.

Their terms have also become shorter, making them more attractive to car buyers. However, leasing a vehicle does not change the fact that you need auto insurance coverage.

When you lease a vehicle, be prepared to face higher requirements of insurance coverage then if you were to own your own vehicle.

For instance, many leasing companies will set a minimum deductible of $1,000 while some will require the deductible to be as low as $500. It is important to remember that additional insurance coverage protects your leasing company.

There are some situations in which the leasing company can be held accountable for damages if the person driving the vehicle did not have adequate insurance coverage.

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Required Insurance Coverage

In addition to your state’s legally required minimum insurance coverages, your lender or leasing company will most likely require you to have collision coverage and comprehensive coverage on your vehicle.

• Collision Coverage –The collision part of your policy will cover damages to your car from an accident with another car or object. This applies to hitting a building, hitting a light pole, or colliding with another car
• Comprehensive Coverage –Comprehensive coverage applies when there is a loss unrelated to a collision with a car or another object. For instance, if your car was destroyed in the fire, stolen, vandalized, or was in a collision with wildlife, comprehensive coverage would be applied

Collision and comprehensive policies help protect both you and your lender or leasing company in the event of an accident.

Covering the Gap

Most lease agreements will require the purchaser to put a small down payment on their lease. However, some require none at all. People who lease their vehicle should be acutely aware that their leased vehicle will depreciate quickly.

This means there will be a large gap between the amount owed on the lease and the amount that the car is actually worth, which is what the insurance company will pay should the car become a total loss.

Gap insurance was created to help cover the discrepancy between these two values. Your insurance company will not look at how much you owe on your loan or your lease when a car is totaled, their job is to pay fair market value at the time of the accident.

With most leasing companies, gap insurance is mandatory. However, if it is not mandatory or you are purchasing your vehicle, you should also strongly consider purchasing gap insurance to protect you in this situation.

With gap insurance coverage the insurer will pay the difference between the cars cash value and what is old to the lien holder.

If you are given a choice, it is usually less expensive to go through your own insurance company to purchase gap coverage than through your lender or leasing company.

However, sometimes the cost of gap insurance is rolled into your lease payments.

This means that you do not actually purchase your own gap policy for the leased vehicle. In these types of situations, the leasing company will purchase the master policy from the insurance company in order to cover all of the cars that the company leases.

It then passes on some of the financial responsibility to you by charging you for a gap waiver within your lease. Check with your leasing company to find out if this is the case in your contract.

Other Types of Car Insurance Coverage

Other types of auto insurance that may be legally required in your state or that you should consider, include the following:

• Bodily injury liability –This type of coverage comes into play in the event that you cause harm to someone else. Purchasing more than the state required a minimum amount of bodily injury liability coverage can help protect your home, savings, and other assets. It’s important to know that your leasing company may require you to have more bodily injury liability coverage than what is legally required in your state
• Medical payments or personal injury protection –This portion of your auto policy covers medical treatment for injuries sustained to you or other passengers in your vehicle. Depending on the state, personal injury protection can cover medical payments, lost wages, and the cost of replacing services normally performed by someone who was injured in the accident. In some situations and states, it can also cover funeral costs
• Property damage liability –This type of coverage applies when you damage someone else’s property. It not only applies to other vehicles but can also include damage to lamp posts, fences, and other structures you may hit. Again, check with your leasing company or on your contract to find out if you are required to purchase more property damage liability than your state’s requirements

No matter who you are, what kind of car you drive, or if you lease, own, or have a loan out on your vehicle, having the minimum legal requirements and amounts of insurance to protect you is very important.

If you are leasing a vehicle, be sure to make sure you have enough insurance to meet your state’s minimums and to satisfy your leasing agreement.

You can do this by checking with your auto insurance company and your leasing company or lender. To potentially find better deals on auto insurance, consider using an online auto insurance comparison tool.

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