Is Insurance Included in a Car Lease?
Car lease insurance decoded: Understand mandatory coverage, cost impacts, and your responsibilities for leased vehicles.
When considering a car lease, a common question arises regarding insurance coverage. While a lease provides access to a new vehicle, insurance is not included in the monthly lease payments. Similar to owning a car, the responsibility for securing and maintaining adequate insurance rests with the lessee.
Insurance is a Separate Cost for Leased Vehicles
Car insurance is a separate financial obligation for individuals leasing a vehicle. The leasing company, known as the lessor, retains ownership of the car throughout the lease term. They require the lessee to obtain specific insurance coverage to safeguard their asset. The monthly lease payment covers the vehicle’s use, its depreciation, and financing charges. It does not encompass external costs such as insurance, fuel, or maintenance. This arrangement protects the lessor’s investment against potential damage or loss.
Types of Required Insurance for Leases
Leasing companies impose specific insurance requirements to protect their financial interest in the vehicle. These requirements often exceed the minimum coverage mandated by state law. Lessees need to carry liability, collision, comprehensive, and often Guaranteed Asset Protection (GAP) insurance.
Liability insurance covers damages or injuries you might cause to others in an accident. Lessors require higher liability limits, such as $100,000 per person for bodily injury, $300,000 per accident, and $50,000 for property damage. Collision insurance covers damage to the leased vehicle from an accident with another vehicle or object, regardless of fault. Comprehensive insurance protects against non-collision incidents, including theft, vandalism, fire, or natural disasters.
Guaranteed Asset Protection (GAP) insurance is important for leased vehicles. Cars depreciate quickly. If a leased vehicle is totaled or stolen, the insurance payout based on its actual cash value might be less than the remaining lease balance. GAP insurance covers this “gap,” preventing the lessee from owing the leasing company a significant sum for a car they no longer possess. Many lessors either require GAP insurance or include it directly in the lease agreement.
How Leasing Affects Insurance Costs
Insuring a leased car can result in higher premiums compared to an owned vehicle. This is due to the stringent requirements set by leasing companies. Lessors mandate “full coverage,” which includes comprehensive and collision insurance, along with higher liability limits, providing greater financial protection for their asset.
The mandatory inclusion of GAP insurance also contributes to the overall cost. While some policies may seem similar to those for owned cars, the specific coverage levels and the necessity of GAP insurance elevate the premium for leased vehicles. Leased cars are new models, which cost more to repair or replace, leading to higher insurance rates than for older, lower-value vehicles.
Maintaining Insurance Compliance During Your Lease
Maintaining continuous insurance compliance is a responsibility throughout the lease term. Before taking possession of the vehicle, the leasing company will require proof of valid insurance coverage. You must provide this documentation, and they will require updated proof periodically.
A requirement is that the leasing company must be named as an additional insured or loss payee on your insurance policy. This ensures that in the event of a claim, any payout for damage to the vehicle is directed to the lessor, as they are the legal owner. Failure to maintain the required insurance coverage can lead to severe consequences. The leasing company may obtain “force-placed” insurance, which is more expensive and offers limited coverage, with the cost passed directly to the lessee. A lapse in required coverage could be considered a breach of the lease agreement, potentially leading to repossession of the vehicle.
In the event of an accident or claim, it is important to notify both your insurance provider and the leasing company promptly. This ensures that all necessary parties are aware of the situation and that the claim process can proceed smoothly, adhering to the terms of your lease agreement.