Insurance Coverage Requirements for Car Leases
How a Car Lease Works
Car leases require an initial outlay to cover typical closing costs of a car purchase such as tax, title and license fees. Your monthly payment after that is calculated based on the cars expected value at the end of the lease term. In other words, car leases charge you for the depreciation on the car.
Your payment can vary widely depending on how much you pay initially, how many miles you plan to drive annually, the initial value of the car and the length of your lease.
Collision Insurance
At a minimum, car leases require that you have insurance in sufficient amount to cover the replacement of the car should you damage it. It is typical to require that you have comprehensive and collision insurance with a maximum $500 deductible.
Personal Liability Insurance
You will also be required to have personal liability insurance. Because the lease company actually owns the car, the company could be dragged into liability issues if someone is hurt by the car even though you are the one driving when it occurs.
You can expect to be required to have personal liability insurance of about $100,000 per person and at least $300,000 per accident.
Gap Insurance
Gap insurance fill a specific function in the car insurance industry, as the name implies, it fills a "gap" left by traditional auto insurance. It is not only for car leases, but can be a good idea as well for any financed car.
Not all car leases require gap insurance, but even if you are not required to have it, it may be a good idea to get it.
What is gap insurance? As an example, if you lease a new car that is worth $20,000 and insure it for its current value, you could be left owing more on the car than your insurance will pay if it is totaled. How does that work? It's possible your new car could be totaled within months of your buying. The insurance company will assume a given amount of depreciation and assume a current market value for the car. If that amount is less than the depreciated value as calculated by the car leasing company, you are liable for the difference.
With gap insurance, it is also important to know that typically you must be current on your car lease for the insurance to be in effect.
