Car Insurance on Leased Cars vs. Owned Cars

Car Insurance on Leased Cars vs. Owned Cars
••• Hemera Technologies/ Images

Leasing rather than purchasing a car has certain advantages. You could lease a nicer car than you could afford to own, with a low or no down payment. However, car leasing has some drawbacks, such as never building up equity and paying more if you exceed your permitted annual mileage. Also, your insurance costs could be higher.

Liability Insurance

All states require that car owners purchase liability insurance, which covers bodily injury and property damage you cause to another person. Each state sets minimum levels of coverage. If you buy the minimum, however, you are responsible for any damages over those amounts. Even though you don't own a leased car, you must buy liability insurance for it as well, to cover any injury or damage you cause while driving the car.

Collision and Comprehensive for Leasing

In addition to liability insurance for those leasing a car, the dealer or leaseholder will require you to purchase collision and comprehensive coverage. While collision insurance pays for damage to the vehicle occurring during an auto accident, comprehensive insurance covers damage to the car due to other causes. This might include flood or fire, a tree limb falling on the car, vandalism and various natural or man-made disasters.

Collision and Comprehensive for Car Owners

If you own your car in partnership with a lender, you'll have to purchase collision and comprehensive insurance, as the financial institution must protect its investment. If you own your car outright, with no outstanding loans, you have more flexibility regarding the type of insurance you must purchase. If you've got a high-mileage, older automobile that you can afford to replace should it be totaled or stolen, you could save money by opting out of those coverages.

GAP Insurance

Most leasing contracts and many new car contracts include GAP insurance, or guaranteed auto protection, which adds to the cost. If your lease or loan agreement doesn't include this insurance, it's a good idea to add it to your motor vehicle policy. If you're in an accident and your car is totaled, this insurance fills the "gap" between what the vehicle is worth and how much you owe on the lease or your loan. As the car depreciates, the car's value will drop below the amount of your lease or loan and you will no longer need GAP insurance.