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Everything you need to know about car leasing and insurance coverage

Yahoo Personal Finance· Getty Images
Updated 5 min read

If you’re weighing the pros and cons of a leased vehicle versus a financed car, one of the considerations that should be top of mind is car insurance. Does insurance coverage get rolled into your lease payments? Will leasing companies require you to carry extra coverage that could be more expensive?

While leasing a car won’t automatically raise your auto insurance rate, it does typically result in more expensive insurance premiums. That’s because leasing companies require more than the minimum coverage your state requires.

While a leased vehicle does carry more car insurance requirements than a financed vehicle, comprehensive coverage isn’t included in your monthly payments. Instead, you'll be required to secure coverage that meets the leasing company’s insurance requirements. This is typically done by adding the leased vehicle to your existing car insurance policy or working with an insurance company to start a new insurance policy.

If you’ve noticed language about insurance coverages in your lease agreement, it might refer to something called gap insurance. Most leasing companies require you to have gap coverage in addition to full coverage to defer the risk of negative equity on new vehicles. Gap insurance protects the leasing company in situations where vehicles depreciate quickly, which happens fastest at the beginning of a lease.

Read more: How to decide whether to lease vs. finance a car

Because the car lease company still owns the vehicle you’re driving, it’s in their financial interest to require additional coverage on your auto insurance policy. Here’s a closer look at how much more insurance coverage beyond the state minimum coverage required you can expect when you lease a car vs. take out a car loan.

Not sure of the difference between these insurance products? Here’s a breakdown of what each type of insurance entails.

Liability insurance covers medical expenses and property damage as a result of any accident you cause. Bodily injury liability coverage is usually required by the state with coverage limits commonly mandated at $25,000 per person and $50,000 per accident. Property damage liability coverage is usually set at a minimum of $10,000 per accident.

Leasing companies often require higher liability limits. It’s common to be asked to carry up to $100,000 of bodily injury liability per person and $50,000 in property damage liability.

Some but not all states require drivers to carry uninsured motorist coverage. This insurance covers costs if you are hit by a motorist who is uninsured. It also protects you in the event the coverage limits of the at-fault driver aren’t high enough to pay for the damage or medical expenses they’ve caused.

No matter who is at fault, collision coverage helps pay for car repairs and damage to another person’s property as a result of an accident.

Comprehensive insurance covers damage from incidents other than collisions, such as theft, vandalism, or natural disasters.

As mentioned previously, gap insurance is sometimes required by leasing companies to protect against negative equity on new vehicles. It covers the gap between the actual cash value insurance companies will pay and the amount owed on the car.

Several states also require a type of no-fault insurance called personal injury protection, or PIP. This coverage specifically reimburses medical expenses as a result of an accident.

The National Consumer Leasing Act requires leasing companies to specify coverages and costs required in writing, so insurance requirements should be clearly detailed in your lease agreement.

Because of the additional coverage typically required, the cost of insurance on a leased car can be more expensive than for a financed vehicle. How much more expensive?

Progressive quotes the average cost of a liability-only auto policy starting at $81-$140 per month depending on your state, vehicle, driving record, and other factors. Insurify, an insurance marketplace, says a full coverage car insurance policy for a leased vehicle averages about $253 per month. This would not include additional coverage such as PIP or gap insurance.

While insurance for a leased car can be more expensive, keep in mind that these numbers also reflect differences in coverage and limits.

Read more: How to get cheap car insurance in 2024

If you’re foregoing an auto loan in favor of leasing your next vehicle, there are still ways to save money on car insurance. Try the following tips to reduce your auto insurance rates.

Some cars are cheaper to insure than others. Check out Progressive’s list of vehicles that are bargains to insure from a Honda Accord Hybrid to a Hyundai Palisade. Choosing a new car that makes the list will help shave more than a few dollars off your insurance premiums.

Having several vehicles on the same policy usually results in lower premiums overall. Most insurance companies offer a multi-vehicle discount that could result in premiums that are 10% lower.

Although insurance coverage limits on a leased car are typically mandated by the leasing company insurance requirements, you can usually lean into a higher deductible to lower your premiums.

Remember though that the deductible is your out-of-pocket cost in the event of an accident so take care that it’s an amount you can afford.

Just because you’re leasing doesn’t mean you aren’t eligible for the full menu of auto insurance discounts from student and senior rates to usage-based insurance.

You can also check with your leasing company if you have questions about enrolling in a telematics program to lower your car insurance rates.

Even if you have a preferred insurance provider, the Insurance Information Institute recommends getting at least three car insurance quotes.

If you find a significantly lower rate through another insurance carrier, you can always circle back and ask your current insurance team if they can help lower your rate with additional discounts.

Read more: Buying a car? Here’s how to shop for insurance