Insurance Requirements for Leased Cars

You need auto insurance for a leased car, just like a vehicle you own. The minimum car insurance requirements vary from state to state, but liability insurance is the most common required coverage. Many states also require uninsured and underinsured motorist coverage or personal injury protection (PIP) insurance.

Likewise, leasing companies have their own requirements for insurance coverage. For example, many require comprehensive and collision insurance for additional protection. They may also require gap insurance, which can pay the gap between the vehicle's depreciated value and the amount you still owe on your lease.

• Insurance Requirements for Leasing
• Leaseholder Requirements
• State Insurance Requirements
• Should I Get More Coverage?
• Lowering Insurance Costs

Depending on where you live, you’ll need to carry a car insurance policy with liability coverage for your leased vehicle. Some states also require additional coverages, like uninsured and underinsured motorist coverage and PIP insurance.

On top of state-mandated coverages, your lessor may also require you to purchase full coverage or gap insurance.

Leasing companies often have insurance requirements beyond state minimum coverages; since they own the vehicle you’re leasing, they want to make sure it’s financially protected in the event of an accident. Some common additional coverages that leasing companies require are comprehensive, collision and gap insurance.

Gap insurance may be optional as part of state minimum coverages, but many lessors require it since new vehicles tend to depreciate once driven off the dealer’s lot. This type of policy covers the difference between the value of the car and the amount you owe on it. If your leased vehicle is totaled in a collision or is stolen, gap insurance can help you pay off the remainder of your lease.

While it isn’t necessary to purchase full coverage auto insurance for your leased car, it may be a good idea since this insurance type includes liability, comprehensive and collision insurance. Full coverage insurance provides financial protection against damages to your vehicle and occupants and the other party’s vehicle and passengers in the event of a collision.

When you lease a car, you’ll need to carry an insurance policy that meets the state minimum requirements, even though you don’t own the vehicle. Keep in mind that while minimum car insurance coverage rules vary by state, local requirements are the same whether you lease, finance or own your car.

Almost all states require bodily injury liability and property damage liability insurance. If you are at fault in an accident, this will cover damage to the other party’s vehicle and medical bills. The average cost of liability-only insurance is $728 per year.

Twenty-two states require drivers to have uninsured and underinsured motorist coverage on their policies. This coverage can protect you if you are ever in an accident caused by an uninsured or underinsured driver. According to uninsured motorist statistics, there are 28 million drivers who don’t have car insurance in the U.S.

While it isn’t required in every state, PIP insurance can help cover your medical bills if you get into an accident. Moreover, it will protect you regardless of who caused the crash, unlike uninsured motorist coverage, which requires you to prove that the other driver was at fault.

The minimum lease insurance requirements may include liability insurance, uninsured and underinsured motorist coverage and PIP insurance, depending on your state’s coverage laws. However, since states only mandate low liability limits, your insurance needs may differ from what your lessor requires you to carry or the coverage you’d need to cover damages to your leased vehicle.

For instance, if you’re at fault in an accident and injure someone else, your liability coverage pays for their medical expenses. However, if you don’t have enough liability insurance to cover these costs, you’ll be forced to pay the remaining costs out of pocket.

Leasing a car may be cheaper than buying it outright. However, that doesn’t necessarily mean that insurance coverage for that vehicle is more affordable. You may find that insurance is more expensive for leased cars since lessors often require high coverages and protections for their property. Typically, lessors require comprehensive and collision insurance for their vehicles.

According to average auto insurance costs, a comprehensive and collision insurance policy typically costs $1,311 per year, while liability-only insurance that meets the state requirements costs $898. That’s an annual difference of $413.

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