What is insurance and why it’s important when buying or leasing a car? A car insurance policy is first and foremost required by law. The insurance on the car will cover the damage to the vehicle when an unfortunate accident happens.
This ensures financial protection for the driver and owner of the car from financial liabilities for the other person’s injuries or damages to properties. Auto insurance will pay for all medical bills for passengers involved in the accident including the driver.
However, the policy will only protect you to a certain limit agreed in the policy between the insurance provider and the owner of the vehicle.
What kind of insurance do you need for a leased car?
When you lease a car, the legal owner remains the leasing company. You are only responsible for taking care of the car during the length of your lease. This type of arrangement is also called a closed-end lease.
With that said, the leasing company must have an auto insurance policy as financial protection against any damage incurred when an unforeseen event happens. This could be in the form of theft or an accident.
There are three insurance coverages required from leasing companies. These are:
- Comprehensive coverage
- Collision coverage
- Liability insurance
- Other coverage
The comprehensive insurance coverage will pay for repairs or even replace the vehicle when damaged because of theft, fire, fallen objects, or when vandalized. Likewise, it also covers any damage in an event that doesn’t involve a collision.
On the other hand, this coverage is only optional if you own the vehicle outright.
Next, collision insurance will pay for repairs or even replace the vehicle if it’s damaged because of an accident. This includes damage by another vehicle or an object like a tree or fence. This is why it’s important to get collision insurance coverage when you’re leasing a car.
Collision insurance coverage is required by the leasing company. This becomes optional when you buy the car after the lease term ends.
Liability insurance can cover an amount starting from $100,000 including bodily injuries to the person. The coverage can be limited to $300,000 per accident. Moreover, it comes with at least $50,000 in property damage.
In addition, there are other available types of car insurance with optional coverage. Here’s an example. Some insurance companies offer diversified plans for drivers who want to use their car for other purposes like ridesharing programs.
There is also coverage that will pay for your rental car while it’s being repaired because of an accident.
Lastly, some leasing companies require gap insurance as part of their payment terms. This is an optional car insurance coverage that will pay off the auto loan of the lessee when the car gets stolen or totaled. This is very important when you owe the leasing company more than the vehicle’s current value.
Who pays insurance on a leased car?
The lessee is responsible for the payment of the insurance on a leased car. As mentioned, it’s required by the leasing company as part of their terms and conditions.
Can you lease a car without insurance?
No, you cannot lease a car without insurance. The leasing company will require you to have an active auto insurance policy throughout the lease period.
Because you’re the one using the car, you are responsible for insuring it and it becomes your responsibility. With that said, you have to make the insurance fully comprehensive most of the time.
Again, this is not included in your lease contract which allows you to find the insurance provider that suits your needs. However, most brokers have good relationships with other insurance companies so you can ask them.
This will save you a lot of time and effort shopping around trying to find the best insurance company.
In Conclusion
When you’re buying or leasing a car, you need to have an active auto insurance policy. This is required by the law in most states.
If you’re leasing a car, the leasing company will require you to have comprehensive insurance coverage. This will protect their interest in case the vehicle gets stolen or totaled in an accident.
Moreover, there are a variety of insurance requirements available when leasing a car. Make sure to carefully read and understand the policy you’re getting and what is required in your state. Likewise, you also have to understand what your car dealership requires, what you’re comfortable with, and the amount you can afford to pay.
Lastly, don’t hesitate to get multiple quotes before you sign up for anything. Do you find this article helpful? Please comment below and let us know.
Thank you for reading!
