Is Insurance on a Leased Car More Expensive?

Hands passing car key

When comparing the pros and cons of buying a new or used car, the option to lease a vehicle may pop up on your radar. When leasing a car, you're essentially renting a new vehicle for a predetermined period of time (usually two to four years). You make monthly payments, and at the end of the lease term, you simply return the vehicle.

Leasing has its perks. In addition to giving you the ability to swap out your vehicle for a newer model every few years, the monthly payments on a lease are typically lower than what you'd pay on an auto loan for the same car. But there are also potential drawbacks. You can expect to pay an upfront fee and extra penalties if you go over the allotted mileage limit for the lease—and you won't own the car at the end of the payment period.

Your insurance payment is another important detail that comes into play. While leasing a car won't affect your insurance rates, you may be required to purchase more comprehensive coverage—and that means paying more. Understanding how it works can help you go into a car lease with eyes wide open.

Will Leasing a Car Affect the Cost of Insurance?

Whether you lease a car, take out an auto loan or buy a vehicle outright, you'll likely be legally obligated to purchase car insurance. Each state has its own minimum requirements, so check your state's insurance department to see what the specific mandates are. The majority of states require drivers to carry bodily injury liability and property damage liability. Many go a step further and require personal injury protection, as well as uninsured motorist coverage.

Leased cars, however, are also usually required by the lessor to be covered by additional levels of insurance beyond the legal minimum. The leasing company is the one that technically owns the car, and they'll want to protect their investment in the event of such an occurrence. That means you'll likely need to purchase extra coverage.

This will include collision insurance, which covers your leased car if it is damaged in an accident with another car or an object, such as a telephone pole or building. Comprehensive insurance, which covers damages not related to a collision, such as those caused by theft or fire, will also be required. Purchasing a more comprehensive policy will mean paying more for your auto insurance. Keep in mind, though, that if you take out a loan to buy a new car, the lender will require you to have these coverages as well.

Factors That Affect Car Insurance Cost

How much you'll pay for car insurance is largely driven by your state's minimum requirements, but it's not the only factor. Premiums tend to vary from insurer to insurer, and your personal driving record is important. Having a history of traffic violations, citations or accidents could mean paying higher auto insurance premiums because you may be considered a riskier driver. Your vehicle itself may trigger higher insurance premiums too. Cars that are more expensive, sportier or more likely to be stolen are often pricier to insure.

Something called your credit-based insurance score may also play a role in your auto insurance rate if you're in a state that allows it. These scores help insurers understand your ability to pay your premiums and how likely you are to file a future claim. Those things may seem unrelated, but research suggests a link between a person's credit score and their insurance risk.

How to Save Money on Car Insurance

You may be able to get a reasonable insurance rate for a leased car, despite having to pay for more comprehensive coverage. Comparing quotes from different providers is one way to potentially save money on car insurance. And some providers may offer you a discount if you negotiate based on better quotes you've gathered.

You can also look into discounts for safe drivers and more. For example, the simple act of taking a defensive driving course could be enough to knock down your premium. Meanwhile, some providers offer discounts to seniors, military service members and high-achieving students. Another potential way to save is by bundling your auto insurance with your homeowners or renters policy. The main takeaway is that you won't know unless you ask—and inquiring about available discounts could translate to immediate savings.

The Bottom Line

Because most leasing companies will require you to purchase a comprehensive auto insurance policy, insuring a leased car is often more expensive than insuring a car you own outright. But you might still be able to bring your rate down to a number you can live with. Improving your credit could be one way to do just that. Experian lets you check your credit score and credit report at no charge. Taking steps to improve your credit could be the first step toward a better insurance rate.