As part of any vehicle lease agreement, you’ll need to carry and pay for auto insurance. This protects the owner of the vehicle in the event of theft, damage or an accident. If you stop paying for your insurance for a leased car, you not only expose yourself to a variety of financial problems, but you might also be breaking the law. Reviewing the basics of insurance for leased cars will help you meet your obligations, even if you’re no longer driving the car.
It’s Part of Your Lease Agreement
When you sign a vehicle lease contract, you must agree to carry insurance when leasing a car, truck or motorcycle. The terms of the lease might dictate how much and what type of insurance you need to carry, explains Progressive. This can include higher limits for collision and comprehensive or higher bodily injury coverage than your state law requires.
The lessor will want to make sure that if anything happens to the car, the company gets all its money back. The terms of the lease not only dictate your insurance requirements, but also spell out what happens if you don’t meet the terms.
Non-Use of the Vehicle
If for some reason you choose not to drive your leased vehicle for an extended time period, you might want to cancel your insurance. The problem with this is that more can happen to the car than just a road accident. It might suffer weather damage (such as hail) or be stolen or vandalized.
For this reason, you’ll need to keep it insured even if you’re not using it. You might be able to change or reduce your coverage, but will need to get this in writing from your lessor.
The Vehicle Might Get Repossessed
The terms of your lease will probably include termination of the agreement if you fail to insure the car, and that might include repossession by the lessor. In some cases, you might need to agree to allow your insurance company to notify the lease company any time your policy changes or if it’s canceled. In addition to losing the car, you might lose the opportunity to extend the lease, even if your insurance lapse was temporary.
You Might Break the Law
If you plan on driving the car while it’s uninsured, you’ll be breaking the law. This not only protects the lessor, but also anyone else on the road or in your vehicle. In some cases, leasing companies require you to pay “forced-placed insurance,” which is arranged for and paid by the leasing company, then added to the cost of your lease, explains the New York Department of Financial Services. Forced-placed insurance is usually more expensive than insurance you buy yourself.
You Can Damage Your Credit
If your lease is terminated and your vehicle repossessed, this will probably be reported to Equifax, Experian and TransUnion, the three credit-reporting agencies. This can damage your credit history, lower your score and make it more difficult to get credit in the future.
In addition, even if you can still get credit, you’ll pay higher interest rates and get lower credit amounts extended to you if you have a lower credit score. If for some reason, you can’t get insurance on a leased car or make premium payments, contact the lessor to see what your options are, including terminating the lease early.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.