Who Pays the Insurance on a Leased Car?

Since you don’t own a leased car, who pays for the insurance? Here are insurance considerations to keep in mind when it comes to leasing a car. 

What is a leased car?

A car lease is an agreement between you and a leasing company that allows you to drive a car for a stated period while making regular payments to the leasing company. You never own a leased car, so you must return the car to the leasing company when the contract concludes. 

Leasing a car has several advantages. First, leasing has lower upfront costs and monthly payments compared to a loan. Leases also typically come with extended warranties or service plans for the duration of the lease. If you like the idea of driving the latest models every few years, a lease lets you change cars when the current lease period is up. 

However, there are some disadvantages to leasing. Most lease contracts set a mileage restriction and impose penalty fees for exceeding that restriction. And since you don’t own the leased car, you will pay more for leasing cars in the long run compared to owning a car. 

Who pays insurance on a leased car?

While a leased car may include service plans, it does not typically include insurance. When it comes to a leased car, the lessee is responsible for paying for insurance. 

Leasing companies and insurance requirements

The car is still owned by the leasing company, but you are responsible for finding and paying for insurance on it. Typically, a leasing company will have certain coverages you must maintain in addition to your state’s mandatory coverage requirements. These requirements typically include higher liability limits and coverage for damage to the vehicle in collision and comprehensive coverage. 

Types of insurance coverage you need for a leased car

Collision and comprehensive coverage will typically be required by your lease agreement. These coverages help pay to repair or replace your car in the event of an accident. Collision coverage applies if your car hits or is hit by another car or stationary object, while comprehensive coverage applies to damage not related to a collision. This includes damage due to things like fire, theft, vandalism or natural disasters. 

Policy coverage: Leased vs owned

A leasing company will almost always require you to carry more coverage and sometimes higher limits for a leased car. While it’s a smart idea to carry more coverage than you think you need, you do not have the option to lower your coverage when it comes to a leased vehicle. When you own or finance the vehicle, you can evaluate your own risk tolerance and select your coverages and limits. 

The key difference comes into play after you’ve owned a car for several years. There will come a time when a car has depreciated so much, it may not make sense to carry collision and comprehensive coverage on it anymore. When leasing a vehicle, you will never get to this point because you return the car at the end of the lease. 

Do you need gap insurance?

Most new cars lose value the second they’re driven off the dealer’s lot. In some cases, this can be thousands of dollars. If you leased it, you could owe more than what your car is worth.  

This can become financially significant if your new car is damaged beyond repair in a covered accident soon after purchase. Typically, lenders will require payment in full for the loss of your car. Totaling a leased vehicle does not void the lease contract. 

Owing money on a car on the way to the junkyard is not an enviable position to be in. You can protect your investment with loan/lease gap coverage. This coverage pays for the difference between what your car is worth and what you still owe on it. It can help free you from having to make payments on a car you can no longer drive. 

Gap insurance may already be included in your lease payment, so check your lease documents for specifics. If it’s not already included, your auto insurance provider may offer it. 

Conclusion: Who pays the insurance on a leased car?

When it comes to insuring a leased vehicle, it is the responsibility of the lessee to pay for the insurance policy. A lease contract will typically require you to carry collision and comprehensive coverage as a condition of the lease. These coverages pay for damage to the insured vehicle. Gap insurance can help protect you if your car is totaled and you still owe money on it.