Whether you decide to finance the purchase of a vehicle or to lease, one thing is certain: you will need to get auto insurance.
Auto insurance companies take a number of various factors into consideration when underwriting a new policy, including your driving history, location of the vehicle and type of vehicle to be insured. One thing that doesn’t go into pricing your policy is whether or not you intend to own the vehicle, or are simply leasing the vehicle for a certain amount of time.
If you are wondering whether leasing or owning a car affects rates, the simple answer is no. But there are a couple of nuances to be aware of when it comes to insuring a leased vehicle versus insuring an owned vehicle.
Leasing Company Requirements
While your insurance quote won’t differ based on whether you are leasing or buying, the leasing company may require you to reach certain limits with your coverage. When you lease a vehicle, the company you lease from remains the title holder and will want the vehicle to be completely protected.
So, if you were planning to save money by skimping on comprehensive and collision coverage, think again. When you lease a car the dealer will likely require you to obtain substantial third-party liability coverage and additional endorsements on your policy.
Gap Coverage For Leased Vehicles
Another insurance product to consider to further protect your financial liability when leasing a new vehicle is gap coverage. Why is it called gap coverage? That’s because it literally covers the gap between the value of the car and what you still owe the dealership.
As soon as you drive off the lot the actual value of the car begins to depreciate. In the event that you are in an accident that totals the car, insurance will only cover the current value of the car. But you are still liable to the leasing company for the full value of your lease agreement, which can be thousands of dollars more than the insurance company is required to pay out.
Depending on the lease agreement, you could still be on the hook for all of your outstanding future payments. That’s where gap coverage comes in, providing payment to the leasing company for any outstanding balance you owe after insurance has been paid.
Many dealerships will require you to carry gap insurance when you lease a vehicle, and even if not, it is highly recommended. While it can add to your overall insurance costs, gap insurance can save you from dealing with a major financial headache.
Gap Coverage For Financing a Vehicle
You may also be required or advised to carry gap insurance when financing a new vehicle. Instead of owing the leasing company, you could owe your lender a considerable sum if the car is totaled in an accident. If you own the vehicle outright or are nearly finished paying off your vehicle, then you don’t need gap insurance.
Another alternative to gap insurance is a waiver of depreciation. This policy endorsement means the insurance company will ignore depreciation and pay up to the original value of the vehicle in the event of a total loss. This endorsement will remain in effect for a set amount of time, usually two years.
Whether you choose to lease a vehicle or obtain a loan to buy one instead, you can find the best car insurance rates on an auto policy by using InsuranceHotline.com.