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The decision to buy or lease a car requires you to weigh several benefits and drawbacks for each option, including short- and long-term costs. One such cost you might not think about is the insurance coverage.
While a vehicle won't be more expensive to insure simply because it's a lease, your leasing company may require coverage levels that a lender wouldn't, which could increase your rates. Here's what you need to know.
Does It Cost More to Insure a Leased Car?
When obtaining auto insurance, you won't be charged more for leasing a car instead of buying it. However, leasing companies typically have stricter insurance requirements because they own the vehicle outright—a lender also technically owns a financed car until you pay off the loan, but you build equity in the vehicle over time as you pay down your loan balance.
As a result, insurance coverage on a leased vehicle is typically more expensive than a policy for a vehicle you've financed with an auto loan.
That said, lease payments are typically lower than auto loan payments, so leasing may still be a more affordable option in the short term. Unlike an auto loan, however, a lease term won't automatically end with you taking ownership of the vehicle.
What Insurance Do You Need for a Leased Car?
Almost every state requires that you have some form of car insurance if you own a vehicle. When you lease a car, however, you'll need more than just the legal requirement. Here are the coverages you can expect to get:
- Collision coverage: Pays for damage caused in an accident with another vehicle or object. Collision coverage is also typically required if you finance a vehicle, but a leasing company may additionally require a low deductible, which can increase your premium.
- Comprehensive coverage: Pays for damages caused by things like theft, weather, vandalism, fire, animals and other acts of nature. Like collision coverage, you'll typically need comprehensive coverage on a financed vehicle, but a leasing company may require a low deductible.
- Liability coverage: Covers medical expenses for bodily injuries sustained in an accident where you're at fault, as well as damage to another person's property. Most states have a minimum requirement for liability coverage, but lenders don't usually require more than that. Leasing companies, on the other hand, may call for higher limits, which can increase your rates.
- Gap insurance: Because new vehicles depreciate quickly once you drive them off the lot, leasing companies may require gap insurance to help recoup the vehicle's full value in the event that it gets totaled. With an auto loan, gap insurance is optional.
Depending on where you live, you may also need to have medical payments coverage, personal injury protection or uninsured motorist coverage. However, potential requirements for these types of coverage are determined by the state you live in, not your leasing company or lender.
Factors That Affect Car Insurance Rates
There are many factors that determine auto insurance rates. Here's a quick summary:
- Location: If you live in an area with higher rates of vandalism, theft and accidents, it could result in higher premiums.
- Vehicle type and model: The value of your vehicle and its potential repair costs will influence your insurance rate. Additionally, some models are more likely to be stolen than others, resulting in higher premiums.
- Vehicle safety features: Insurers may provide premium discounts for vehicles that come equipped with advanced safety features.
- Driving record: If you have a history of moving violations or accidents, it could result in a higher rate.
- Mileage: If you have a long commute or tend to drive a lot for other reasons, it can result in higher premiums.
- Age and gender: More experienced drivers tend to get in fewer accidents than younger drivers, particularly teenagers, so expect rates to go down as you get older. Additionally, women tend to get in fewer accidents than men (and less serious ones), so they typically qualify for lower rates.
- Credit: In most states, auto insurers use a credit-based insurance score to help determine your rate. The factors that influence these scores are similar to the factors that influence the credit scores lenders use.
- Coverage levels: The types of coverage you choose and how much coverage you request, including deductibles, will also influence your premiums for better or worse.
How to Save Money on Car Insurance
While there are some things about your insurance policy that you can't control, there are some steps you can take to save some money, including the following:
- Shop around. Each insurer has its own approach to pricing insurance policies, so it's crucial that you get a quote from several different carriers to determine which one offers the best deal. Just make sure you're comparing the same coverage levels for each insurance carrier.
- Select the right coverage. Knowing how much coverage you need can be difficult. You want to protect yourself from a potential financial loss, but you don't want to pay for more than you need. Consider your financial situation and comfort level with risk to get an idea of the types of coverage, amounts and deductibles. You may also consider consulting with an insurance agent to get expert advice.
- Bundle your policy. Many insurance carriers offer discounts if you get coverage for multiple vehicles or bundle your auto insurance policy with other types of insurance, such as life, homeowners, renters, motorcycle or umbrella insurance.
- Look for other discounts. Depending on the carrier, you may also qualify for discounts if you have a good driving record, you belong to a certain organization or work for a specific employer, you make full payments instead of monthly installments or you take a defensive driving course. Check with each insurer to get a full list of available discounts.
- Improve your credit. While good credit won't necessarily get you better premiums on its own, it can keep an insurer from hiking your rates.
The Bottom Line
Because most leasing companies will require you to purchase more coverage on an 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, particularly by shopping around for rates. Improving your credit could be one way to do just that. Experian lets you check your credit score and credit report for free. Taking steps to improve your credit could be the first step toward a better insurance rate.