Car Insurance for a Leased vs Owned Car
Leasing requires higher coverage limits than owning, plus gap insurance, since you're insuring a car you don't own but still owe on.
What a lease adds to your policy
- Higher liability limits Your lessor sets a minimum you must carry, usually above what you'd choose on your own. Check your lease agreement for the exact figures before you buy a policy, since they're spelled out there.
- Low or no deductible option Some lessors cap how high your deductible can be. Look at the lease paperwork for a maximum deductible before picking a plan, so you don't buy a policy that violates the terms.
- Gap coverage This pays the difference between what you owe on the lease and what the car is worth if it's totaled or stolen. Without it, you could owe money on a car you no longer have.
- Lessor named on the policy The leasing company is usually listed as an additional interested party or loss payee. Tell your insurer who holds the lease so claim payments go where the lease requires.
- Comp and collision required Leases almost always require both, even if you'd have skipped one on a car you owned outright. Confirm this is in your quote, since it's not optional while you're leasing.
What happens to my insurance if I total the leased car?
Your insurer pays the car's actual cash value to the lessor, since the lessor owns the car and your policy protects their asset as well as you. That payout is based on what the car is worth at the time of the loss, not what you still owe on the lease.
Leases are structured so what you owe often stays higher than the car's value for a long stretch, especially early on. If there's a gap between the payout and your remaining lease balance, you're responsible for it unless you have gap coverage. That's the entire reason lessors require it. Once gap coverage pays the difference, the lease is considered satisfied and you walk away without owing the leasing company anything further, though you still won't have a car.
You're not insuring your car. You're insuring someone else's car you're responsible for until the lease ends.
Compare quotes that include the liability limits, deductible, and gap coverage your lease requires.
Buying gap coverage or skipping it
If you do
If the car is totaled or stolen, gap coverage pays whatever your insurer's payout doesn't cover against your remaining lease balance. You owe nothing further to the leasing company. You turn in no car, owe no gap, and can shop for a new vehicle without old lease debt following you.
If you don't
If the car is totaled or stolen without gap coverage, you pay the difference between the payout and what you still owe out of pocket, often while also needing a new car. This can mean paying off a lease on a car you no longer have, with no vehicle to show for it.
Totaling a leased car six months in
A driver leased a car and insured it with the same limits they'd used on their old owned car, assuming insurance was insurance. Five months later, someone ran a light and totaled it. Their insurer calculated the car's value at that point, which was lower than the remaining lease balance because leased cars depreciate fast early on and the payoff schedule doesn't move with it.
Because they had skipped gap coverage, they owed the leasing company the difference directly, several thousand dollars, with no car to drive and no trade-in to offset it. They ended up financing a new car while still paying off a lease balance on a totaled one. Had they read their lease agreement's insurance requirements before buying coverage, they'd have seen gap listed as required, not optional, and avoided paying twice for one accident.
