What coverage do I need when leasing a car? One way to understand the difference between buying and leasing a new car when it comes to insurance coverage is to consider the following two scenarios.
If you were to buy a new car, you would be free to choose your insurance coverage for items such as liability, comprehensive and collision (as long as they were at least equal to your state minimums for these areas).
But let’s suppose you were to buy a new car for your son or daughter. But rather than give them the car, the arrangement with them is that this is to be a long-term rental (or lease).
You allow your child to choose what kind of insurance they want to buy, subject to (or course) your pre-defined limits. After all, this is still your car, and you want to protect your investment. Maybe at the end of the term you would like to pass the car along to allow your son’s or daughter’s younger sibling (or next “lessee”) to benefit from a similar arrangement.
Your son or daughter may be looking to save money by purchasing only the state minimum coverage on your vehicle. But for you, that won’t be good enough. You want to protect your precious investment.
In the real world, the leasing company is like the parent and the lessee is like the child in terms of the options for insurance that the lessee may purchase.
Usually the leasing company will require from the lessee the following minimums:
- $100,000 per person and $300,000 per occurrence bodily injury liability coverage
- $50,000 property liability coverage
- Actual value comprehensive and collision with no more than $500 deductible
Now this may be more than you would typically purchase, especially if you were buying the car outright. For instance, to save money on your insurance premium, you may choose a $1,000 deductible.
But remember in this case, the leasing company (or bank) actually owns the car. They are looking to protect their investment. Should you have an accident, or if the car is stolen, they want to be assured that they will be covered. As a result, the leasing company will probably require that you carry collision, comprehensive and liability coverage for your (uh, their) vehicle. They will also likely require GAP coverage in some states, which pays for the cost of replacing the vehicle should you total it.
As the lessee, you must follow their rules, realizing that these higher insurance rates may, in essence, increase the cost of your lease. This increased cost for increased coverage is something else to consider when weighing the differences between a lease and an outright purchase. (With a purchase, you have a greater choice of options for auto insurance.)
As another example, although required bodily injury and property damage limits vary by state, your leasing company will likely require that you carry more than your state’s required amount.
A good tip: realize that insurance needs and laws surrounding a lease are complex. Insurance coverage varies wildly from company to company. Laws are vastly different from state to state. Your independent agent is educated as to the law and has a wide range of companies to provide coverage options.
Don’t try to handle your insurance without an agent you trust.
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Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
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