Roughly one-third of all drivers on American roads have a leased vehicle. The rest have approached a lender to finance their vehicle. Regardless of whether you financed or leased your car, you still need a reliable auto insurance policy to protect not only you but other drivers on the road too.
However, depending on whether you borrowed or leased, your insurance requirements may slightly differ. Here are some of the factors you have to consider so that you can better understand the difference in auto insurance policies for these 2 types of vehicles.
Whether you’re leasing or financing a car, auto insurance will be necessary. Although every state might differ in their minimum requirements for auto insurance, both leasing companies and lenders expect customers to acquire liability, collision, as well as comprehensive coverage. They may also cap your deductible at $500 – $1,000.
Remember, without the right insurance, your vehicle may even face repossession.
Liability insurance is a requirement in all states, but leasing firms generally require that you get a better policy than banks or state governments desire. A leasing will want you to purchase liability cover with medical coverage that caps at $100,000 and property damage capped at roughly half that. In general, this is much higher than the minimum requirements of each state.
The reason for this is that leasing firms run the risk of legal action when one of their customers is the cause of an accident and does not have adequate insurance. A leasing firm could end up in a lawsuit and be liable to pay repairs to someone’s car as well as their hospital bills.
Regardless of whether you lease a car or take out a loan to finance one, insurers will charge the same rates on equivalent policies. The difference is that banks and leasing companies tend to require different coverage limits. Furthermore, one lesser-known type of auto insurance is included in some lease payments, but it typically doesn’t come with loans.
When you lease a car, you have a chance to drive around in a newer or more expensive car. This might lead to higher insurance bills. Once consumers realize that it cost more to insure a luxury or sports car, it’s not uncommon for them to consider termination fees, and many do end up terminating the lease agreement.
Dropping Your Coverage
As long as you continue to drive the leased vehicle, you will continue to pay full coverage. However, if you finance your car, you have the opportunity to discuss your options with an insurer, giving you the option to lower your insurance premiums, especially once the car has been paid off.
When you lease a car, your insurance coverage will in all probability remain higher compared to financing your vehicle.
Gap insurance is often referred to as “waiver of depreciation” coverage. This type of policy will be your safety net against a newly purchased car that’s in an accident and a total write-off. When you have gap insurance in place, you have a great chance of purchasing a new vehicle after your accident.
Leasing firms frequently provide gap insurance and add it as part of the monthly premiums. It’s not always included, so best to ask. Lenders to not require that you take gap insurance so, ultimately, it will be your choice. Always keep in mind, however, that gap insurance is your only safety net against total financial disaster when you acquire a leased or financed vehicle.