Insurance Requirements for Leased Cars


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ByMark Fitzpatrick
Edited byLukas Velunta
ByMark Fitzpatrick
Edited byLukas Velunta

Updated: May 20, 2024

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Both leased and owned cars require insurance, with state minimums often including liability and possibly uninsured motorist coverage or personal injury protection. Leasing companies usually add their own requirements, such as comprehensive and collision insurance, and may also suggest gap insurance to cover any value discrepancies.

Lessees must purchase insurance for their leased car because it's not included. Not doing so could lead to penalties from the lessor or the imposition of force-placed insurance, which is often more expensive.

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Why Trust MoneyGeek? MoneyGeek evaluated information from Quadrant Information Services and state insurance departments using different driver profiles and locations to illustrate how important it is to compare car insurance rates when shopping for a policy. This is because rates for the same profile can vary by the insurance company.

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Requirements for Leased Car Insurance

How much insurance you need depends on where you live and your leaseholder’s insurance requirements. Almost all states require drivers — whether owned, leased or financed — to carry liability car insurance. Some states also require additional coverages, like uninsured and underinsured motorist coverage and PIP insurance.

On top of state minimum car insurance requirements, your lessor may also require you to purchase full coverage car insurance and/or gap insurance.

Coverage Type
State Requirements
Leaseholder Requirements

Varies per state

Varies per state

In no-fault states

In no-fault states

Insurance isn't included with leased or financed cars — you must secure it on your own. If you don't, or if your coverage falls short, the leaseholder might opt for force-placed insurance on your behalf. This tends to be more expensive, so arrange your own coverage to avoid additional costs.

Coverages for Leased Cars

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    Liability Insurance

    If you're at fault in a collision, liability insurance covers the driver of the other vehicle involved. The vast majority of states require liability insurance, including bodily injury and property coverage. Leaseholders may also require higher policy limits than what your state requires.

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    Uninsured and Underinsured Motorist Coverage

    Some states also require you to carry an uninsured and underinsured motorist coverage policy. This insurance protects you if you’re in an accident caused by an uninsured driver, a driver whose coverage cannot cover your costs or a driver whose insurance company denies their claim.

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    Personal Injury Protection (PIP)

    PIP insurance helps you pay for the medical expenses related to injuries you and your passengers sustained in a car accident. This coverage is required in some states and optional in others.

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    Collision Insurance

    Collision insurance covers the repair or replacement of the leased vehicle if it’s damaged after colliding with another car or object. The coverage is also typically part of full coverage insurance.

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    Comprehensive Insurance

    Comprehensive insurance helps pay for repair or replacement if your car is damaged in an incident other than an auto crash. This coverage is typically purchased with collision insurance as part of full coverage insurance.

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    Gap Insurance

    If your car is totaled in an accident or stolen, gap insurance may come in handy. This insurance covers the difference between the amount you owe on the leased vehicle and its actual value.

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DEDUCTIBLES ON A LEASED CAR

Lease agreements often set a cap on the deductible for your car insurance, impacting your monthly premiums. A lower deductible can mean higher premiums. This detail is usually specified in your lease contract.

Gap Insurance: A Common Requirement

Lessors often require gap insurance to cover the depreciation of new cars once they leave the dealership. This insurance covers the gap between the car's worth and what you owe on the lease, especially important if the car is totaled or stolen. Without it, you might still owe lease payments on a car you can't use.

Gap insurance isn't available from all insurers, so you may need to shop around to find one that includes it with their comprehensive and collision coverage. It's a smart choice, particularly for higher-value leases. Options for payment include monthly or an upfront lump sum.

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HOW GAP INSURANCE WORKS

Imagine you owe $25,000 on a lease. If the car is totaled, your regular insurance pays $20,000, but you owe $5,000 more. Gap insurance covers that $5,000, so you don't have to pay it out of pocket.

Entities to List on the Car Insurance Policy

When insuring a leased car, include the leasing company on the policy. In case of a claim, the payment check is issued to both you and the leaseholder, requiring their endorsement to cash. Sometimes, the check must go directly to the leaseholder for repairs. Unlike with owned cars, any claim payout must be used solely for repairing the vehicle.

Cost of Leased Car Insurance

The cheapest car insurance companies for leased cars are:

  • Travelers: $89 per month, $1,068 per year
  • Nationwide: $90 per month, $1,084 per year

Insuring a leased car often costs more than insuring an owned one because leases typically require comprehensive and collision coverage, not just liability. Owners of cars can opt for liability-only insurance, which is less expensive.

TravelersAnnual Premium$1,068Monthly Premium$89
NationwideAnnual Premium$1,084Monthly Premium$90
GEICOAnnual Premium$1,171Monthly Premium$98
State FarmAnnual Premium$1,219Monthly Premium$102
ProgressiveAnnual Premium$1,276Monthly Premium$106
AllstateAnnual Premium$1,424Monthly Premium$119
FarmersAnnual Premium$1,443Monthly Premium$120

To avoid high insurance costs, research the insurance rates for the car model you're considering leasing before finalizing the lease. Factor in these insurance premiums along with the lease payments to understand the full cost.

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IS IT CHEAPER TO INSURE A LEASED CAR?

Insuring a leased car is often more expensive than insuring a purchased one due to higher coverage levels, higher policy limits and low maximum deductibles.

Leaseholders typically require higher coverage levels and policy limits than state laws. These requirements typically include comprehensive and collision insurance, driving up the premium costs compared to the basic coverage that might suffice for an owned vehicle. And if your lease agreement has a low maximum deductible, that could also increase your rates.

The average cost of car insurance with comprehensive and collision coverage typically costs $1,311 per year, while liability-only insurance that meets the state requirements costs $898. That’s an annual difference of $413.

How to Save on Leased Car Insurance

Even if your lessor is strict with its lease insurance requirements, you can still find ways to lower the cost of your policy. MoneyGeek gathered some key steps you can take to help lower your premiums:

1
Shop around

Compare quotes from at least three different insurers to find the best rate for the coverage you need. Use car insurance calculators to find the cheapest car insurance companies. Each car insurance company rates drivers differently. Similar coverages from different insurers can result in very different rates.

2
Bundle policies

Combine your auto insurance with other policies, like home and auto bundles, for more savings.

3
Max deductibles

Opting for the highest possible deductible your lease agreement will allow can lower your premiums, but make sure you can afford it in case of a claim.

4
Maintain a good driving record

Safe drivers often qualify for lower rates through discounts.

5
Credit score matters

A higher credit score can lead to lower insurance costs.

6
Take advantage of discounts

Look for car insurance discounts for things like anti-theft devices, defensive driving courses or low mileage.

7
Review your coverage

Ensure you're not over-insured, considering the lease's coverage requirements.

8
Pay annually

Paying your premium in full annually, rather than monthly, can reduce costs.

FAQ About Leased Car Insurance

You need to buy an auto insurance policy for your leased vehicle, even though you don’t own it. MoneyGeek answered some common questions about leased car insurance requirements to help you get started.

What insurance is required for leased cars?
Do you need insurance to lease a car?
Who pays for insurance on a leased car?
Is it cheaper to insure a leased car?
How can I find cheap insurance while leasing a car?

About Mark Fitzpatrick


Mark Fitzpatrick headshot

Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.