How does insurance work for leased cars?

Key takeaways

• Car insurance for leased vehicles protects the driver and the leasing company.
• Stricter insurance requirements for leased vehicles can make the cost of coverage higher compared to an owned car.
• Find the best insurance rate for your leased vehicle by getting quotes from multiple car insurance companies.

Are there insurance requirements for a leased car?

When it comes to insurance for leased cars, there are some important differences compared to financed or owned cars. Leasing a car means you don't fully own it, so the insurance rules are different.

Insurance for leased vehicles helps protect both you (the driver) and the leasing company. Since the leasing company owns the car, they want to make sure it's safe while you're using it. Because of this, you might have to get higher coverage for things like damage and accidents than what your state usually requires. This helps protect the car that isn't fully yours.

Four common insurance requirements for leased cars

• Collision. Collision coverage helps pay for damages to your leased vehicle from a collision with another vehicle or object—regardless of who is at fault.
• Comprehensive. Comprehensive coverage helps pay for damages to your leased car that is caused by something other than a collision, such as a fire or theft.
• Liability. Liability insurance for leased cars covers bodily injury and property damage that you cause to others when involved in an accident.
• Gap insurance. Cars naturally reduce in value over time. Gap insurance for a leased car protects you financially if the vehicle is totaled or stolen, paying the difference between the vehicle's depreciated value and the amount left on your lease. Simply put, gap insurance for a leased car essentially keeps you from having to pay out of pocket for a vehicle you no longer own.

For example, let's say your leased car is stolen. When this happens, your car's value may not be enough to cover what you still owe on the lease. In this scenario, gap insurance will step in to pay the difference between the car's depreciated value and the amount remaining on your contract. In short, gap insurance acts as a safety net, making sure that you're not stuck paying out of pocket for a car you no longer have.

Why does my leasing company have to be listed as an additional insured on my insurance policy?

When you get insurance for a leased car, the leasing company will want to be named as an "additional insured" and "loss payee" on your auto insurance policy. This means that if there's a claim, any money paid out will go directly to the leasing company. This is because the car still belongs to them until you finish paying off the lease (if you choose to do so).

Is it more expensive to have car insurance for leased vehicles?

In general, insurance for leased vehicles will cost more compared to cars that are owned. This is because leasing companies typically require full coverage (comprehensive and collision), as well as gap insurance and higher limits—all of which can increase the overall cost of car insurance for leased vehicles.

How much is car insurance for a leased car?

The average cost of insurance for leased cars depends on a few key factors that include the make and model of the vehicle, where you live, your driving history, and the coverage requirements that must be met by the leasing company. According to the Insurance Information Institute, the average cost of full coverage car insurance for leased vehicles in the U.S. ranges from $1,500 to $1,700 a year.

Who pays the insurance on a leased car?

When you lease a vehicle, you are essentially renting it until the loan is paid in full. Which is why you, the person leasing the car, is responsible for paying the insurance premiums. Keep in mind that the leasing company will require you to provide proof of insurance.

Ready for a car insurance quote on your leased vehicle? Get a car insurance quote in under 10 minutes to see how much you could save when you only pay for what you need.