car leasing with insurance
Leasing a car is a more popular option than ever. Leasing is a more affordable option than ownership.
Leasing a car involves paying a small down-payment, usually less than 20% of the car’s value, and then paying monthly fees for leasing the car. At the end of the lease term, you return the vehicle and pay additional fees (such as for mileage overages or repairs to the car).
Coverage is Mandatory
As with driving any sort of car, you will be required to have insurance before you drive it off the lot. In most instances, you will not be able to drive a vehicle off the lot before you buy insurance.
If you are leasing a new vehicle after returning your previous vehicle, your insurance will transfer, and you will usually have a limited window within which to inform your insurance company of the change in vehicle details, this can be anywhere from a few days to a few weeks, depending on the state within which you reside.
This may cause a increase change in your premium, although it may also result in no change.
Higher Coverage Required
Because you do not own the car, the leasing company wants to take extra steps to protect their asset.
This means that they will require you to have higher levels of insurance. In effect, they are guaranteeing that you will carry the appropriate protection to protect the car from damage.
Again, before they let you drive off the lot, they will require you to provide proof of certain levels of insurance coverage. You will also need to list the leasing company as an additional interest and loss payee (meaning that they will get the payout for any damages to the vehicle).
Higher Liability Limits
In most states the basic form of liability insurance takes two main forms:
Bodily Injury Liability
This covers injuries other than your own. The typical minimum level is $25,000 per person and $50,000 per accident (although it does vary from state to state).
Property Injury Liability
This pays for damage to property and is usually set at a minimal $10,000 per accident
Collision and Comprehensive
One of the most common insurance requirements when it comes to leasing a car is the requirement for additional insurance beyond liability coverage.
Since the lessor retains ownership of the car, they require a reassurance that the car will be repaired in the event it is damaged.
Your leasing company may also set an upper limit on your deductible.
A deductible is the amount you will need to pay out of pocket before the insurance company will contribute. An insurance company will lower your monthly premiums if you have a higher deductible, although you will increase your own financial exposure.
As a result, leasing companies set an upper limit as an added reassurance that the leased vehicle will be repaired in the event it is damaged.
Bundling with Your Lease Payments
In some instances you can actually buy your insurance from the lessor, meaning your can bundle everything together.
These services are becoming more and more common, with ‘auto subscription’ services bundling everything together. Canvas, a subsidiary of Ford is one of the pioneers of this type of service.
Prices vary based on the type of vehicle and package selected, but may include maintenance, insurance, mileage fees or other fees.
Can Only Use Original
Equipment Manufacturer Parts
One of the downsides of leasing a car is that the lease will often require that you use Original Equipment Manufacturer Parts (OEM).
This is a disadvantage of leasing, because that the leasing company gets to choose the repairs, and you have to pay for them. As a result, if you lease a car, particularly if it is a luxury car, your insurance may increase.
Gap insurance is useful for financed or leased a car because of depreciation. Cars begin to lose value the second you drive them off the lot, with most vehicles losing around 20% of their value in the first year.
If you total or badly damage your car (or in some instances when it is stolen) the insurance will pay for
the market value of the car, which may be less than the amount you owe. In this instance, gap insurance covers the difference between the two.
Gap insurance may be compulsory with a lease, but if not, may be a good idea:
If you paid a down payment less than 20% of the vehicle’s total cost (at the time of sale)
If you have a contract of five years or longer
If you purchased or leased a vehicle that depreciates faster than the average
Rolled over negative equity from a previous lease or loan into the new loan
If any of these circumstances apply to you, then gap insurance is a solid option to cover you in the event of a catastrophic crash or a car theft.
Other Types of Insurance
As well as gap insurance, you may be able to purchase other insurance types that will cover you financially during the term of your lease (and at lease end). Each of the following options covers some of the most common issues when it comes to leasing a car, to avoid getting stung with out-of-pocket overages at the end of your lease.
Wear and Tear Insurance
Wear and tear on a car is an inevitable part of driving. The small dings that you get from driving, whether it be chipped paint or tiny scratches, are your financial responsibility according to the leasing company.When your lease ends, you have two options:
Pay a fee to the leasing company to do the work (this usually includes a markup)
Pay to have the car repaired to an as-new standard
The five most common items that are typically charged as wear and tear, and the cost of replacements are:
Exterior Dings and Dents
$45-$135 per ding
Tears and Burns to Upholstery
$35-150 (depending on upholstery type)
$75-200 for replacement tires
Anywhere from $25 to replace a chip to $200 for replacing a windshield
These fees can add up, especially if you have to replace worn tires, or have small amounts of damage to a critical part of the vehicle. Wear and Tear Insurance will cover you in the instance that you have significant costs from repairing the wear and tear.
Mechanical Breakdown Insurance
Mechanical breakdown coverage pays for car repairs that are not included in a car’s warranty. This doesn’t include damage caused by accidents, which are covered under collision or comprehensive insurance. Your car dealership will usually offer you an extended warranty.
In those circumstances, mechanical breakdown insurance may be a better option, because:
- It will cover more parts of the car
- It will cost less (because you can shop around rather than buy from a dealer)
- It can outlast your lease
(i.e. may transfer to your next vehicle)
- It will give you a choice of mechanics to use if something goes wrong (rather than requiring you to go through a dealer)
- You can bundle it with your other insurances to save money
The most common things covered by a basic mechanical breakdown insurance policy are:
- Engine parts
- Alternator and other electrical components
More advanced policies may also cover the following:
- Air conditioning/ heating
- Fuel system
In most cases, the warranty on your car functions as a form of insurance policy, in that it protects you if something fundamental breaks, since the cost of repair will be born by the manufacturer. The standard coverage from a warranty is 36,000 miles and three years. If anything brakes within this period, you can return the car to the dealer, and they will pay for the cost of repairs.
Warranties also cover powertrain, which means that your engine and transmission are covered. This is critical because typically these are the most expensive parts of the car to repair. Warranties are mandated by federal law to provide an 8 year or 80,000-mile warranty for the catalytic converter and other emission controls.
Something that’s also worth examining is whether roadside assistance is covered in your warranty.
This is becoming a more common feature of warranties, where once it was the preserve only of luxury brands. You should make a point to closely check your warranty at the point of leasing a car, and making a list of what is covered.
Leasing a car is an increasingly popular way of financing a vehicle. It is often cheaper than taking out an auto loan and allows you to have a new car at an affordable rate. For today’s adults, many of whom are experiencing a higher cost of living than their elders, leasing is a great way to access a vehicle. However, knowing how to manage the insurance aspects of it is critical, since it can save money if done correctly, but if handled incorrectly could cost money. Being savvy with your insurance is as important as getting a great deal on the car.
Licensed Insurance AgentCynthia Lanctot