Who Pays for Insurance on a Leased Vehicle?
Leasing a car? Understand your insurance responsibilities, the coverage you'll need, and how to ensure continuous compliance with your lease.
When leasing a vehicle, understanding insurance responsibilities is important. A common question is who pays for insurance on a leased car.
Lessee’s Insurance Obligation
When leasing a vehicle, the lessee assumes responsibility for its insurance. A leased car remains the property of the leasing company (lessor) throughout the lease term. The lessor requires the lessee to maintain insurance to safeguard their asset against damage, theft, or loss, and to protect against liability from the vehicle’s use.
Insurance costs are separate from monthly lease payments. Lease payments cover depreciation and other charges, but not insurance premiums. Lessees must secure and pay for an insurance policy independently, ensuring continuous coverage for the lease duration.
Required Coverage Types
Leasing companies require lessees to carry specific types and minimum limits of insurance. This often means obtaining “full coverage” insurance. This comprehensive requirement usually exceeds state minimum liability coverages, which primarily cover damages or injuries to others.
“Full coverage” includes collision coverage, which pays for damage to the leased vehicle from an accident. Comprehensive coverage protects the vehicle from non-collision events like theft, vandalism, fire, weather, or animal impacts. Lessors also demand robust liability coverage for bodily injury and property damage to others if the lessee is at fault. Leasing companies often require higher liability limits than state minimums, such as $100,000 per person for bodily injury, $300,000 per accident for bodily injury, and $50,000 for property damage. Specific coverage requirements, including deductible limits, are detailed in the lease agreement.
Maintaining Insurance Compliance
Maintaining insurance compliance throughout the lease term carries significant consequences if neglected. Lessees must provide proof of insurance to the lessor, often by submitting a policy declarations page or by listing the leasing company as an additional insured or loss payee. This ensures insurance payouts for vehicle damage go directly to the leasing company, as they own the asset.
The lease agreement mandates continuous insurance coverage from vehicle acquisition until the lease concludes. A lapse in coverage or failure to maintain specified insurance can lead to significant consequences. The lessor may purchase “force-placed” or “collateral protection” insurance on the lessee’s behalf, which is much more expensive and offers minimal protection for the lessee, primarily covering the lessor’s financial interest. Non-compliance breaches the lease agreement, potentially resulting in penalties, early termination fees, or vehicle repossession. Without adequate coverage, the lessee bears full financial responsibility for damages and injuries, leading to substantial out-of-pocket costs and legal liabilities.