Leasing a car? Auto insurance could cost you

By Tom Tennant on November 25th, 2010

Auto Insurance

If you lease a car, you must buy insurance for the vehicle, just as though you purchased the vehicle new. That's a no-brainer. But what a lot of drivers don't know is that the lease contract will stipulate exactly what kind and how much coverage you must purchase. Since you are "borrowing" the car from the leasing company, the company is simply doing what it can to make sure it's fully protecting its asset.

That could be a budget buster for some, so it's best to know what's expected of you before you sign on the dotted line.

What coverage is required?

Most leasing companies will require you to purchase both collision and comprehensive coverage -- typically, enough to cover the car's actual cash value. Collision covers the cost to repair the car after an accident with another vehicle or object. Comprehensive covers damage and loss caused by vandalism, theft, fire and other acts not involving another vehicle.

The lessor may even limit your deductible to a particular dollar amount, usually $500.

Don't forget liability coverage

Plan on buying liability coverage above your state minimum and budget accordingly. The lessor will want to know you're adequately protected. Because if you're adequately protected, then they're adequately protected.

If you're comparing car insurance quotes to get a sense of how much your auto insurance premium will be, a good rule of thumb is to request a quote with at least $50,000 per person/$100,000 per accident liability coverage -- maybe even $100,000 /$300,000 -- and $50,000 in property liability coverage. Bonus: this coverage protects your assets -- your home and other valuables, for example -- if you're found liable for an accident.

Mind the gap

Finally, let's talk about gap insurance. If your car is totaled in an accident, destroyed by an act of nature or stolen by a thief, gap insurance pays the difference, or "the gap," between your car's actual value and the amount you owe the company. It seems reasonable that your lessor will want you to carry this coverage. Otherwise you'd be on the hook for payments for a car that you can't use.

But before you contact your insurance agent, talk to your leasing company. According to the Insurance Information Institute, the lessor often buys a "master policy" from an insurance company, which covers all the cars the company leases. Then the leasing company turns around and adds something called a "gap waiver" to your monthly payment. This waiver is, essentially, gap insurance. If this is the case, you won't need to purchase gap insurance separately.

But you'll need to read your lease contract carefully and make sure. If the waiver isn't included in your lease, talk to a licensed agent about adding gap to your policy.


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