While it’s true that leasing can get you more car for less money, you will need to carry more insurance on that car. While this, of course, will impose additional expense, leasing usually still requires a lesser financial outlay. Still, though, you might be wondering why it costs more to insure a leased car. Make sure to compare lease vs. buy options for your vehicle. Here’s why.
The law requires drivers to carry liability insurance in every state of the union. You may also be required to carry uninsured motorist coverage.
Liability coverage pays to repair anything — or anyone — you might hit while driving. In essence, it exists to cover someone’s expenses if you are a fault in an automobile accident that inflicts injury or damages property. You’ll need this insurance regardless of the type of car you have, as well as whether you’ve leased or bought your car.
Uninsured Motorist coverage covers you in the event your car is in an accident caused by a driver who has no insurance (yes, there are people out there driving without coverage) or if the insurance they have is insufficient to cover the extent of the damage they cause. You might also need to carry personal injury protection, also known as no-fault insurance.
Once you’ve decided on the kind of vehicle you want, read all the pros and cons of lease vs. buy so you can make the right decision. In most cases, it is beneficial to lease the vehicle. While you don’t own the leased car, you are responsible for all aspects of its operation, including maintenance and any legal issues that may arise during the period defined by your lease agreement. So, in addition to the basic coverages required by law, leasing companies insist their customers carry collision coverage, comprehensive coverage, and GAP coverage — all at the maximum limits allowed by law.
This means you’ll need liability coverage of up to $100,000 per person / $300,000 per occurrence and property liability coverage of at least $50,000. State minimums usually come in around $30,000 in liability coverage and $5,000 in property damage.
Collision coverage repairs the car you’re driving, regardless of who is at fault in the accident.
Comprehensive coverage pays to repair the car if it’s damaged by anything other than a collision, such as if it is stolen or damaged during a storm, fire, or flood. The car is also protected against vandalism or if something falls on it — like a tree.
GAP coverage makes up the difference between the actual cash value of the car and the outstanding balance on any loans against the vehicle should it be declared a total loss.
Lessors also insist upon their customers carrying a reasonable deductible to ensure it can be paid if the need arises. This typically comes in around $500 and is seldom more than $1,000.
All of This Costs More
As you may have gathered, carrying so much coverage is costly. Insurance companies are all about minimizing the degree of risk they’re asked to take on. It helps to think of insurance from the carrier’s perspective. They’re playing the odds you’ll drive trouble-free so they can keep the money you’ll pay in premiums over the life of your policy. The less the odds tilt in their favor, the more they’ll charge to offset that claim when it eventually comes in.
Put, the more risk they assume, the more they charge for doing so.
Meanwhile, your leasing company is trying to make sure its behind is completely covered should something go sideways. By requiring you to carry the maximum amount of insurance allowed by law, they’re placing a huge cushion between themselves and any potential financial liability in the event of a loss.
And, that’s why insurance can cost more when you lease vs. buy.