Updated: May 2016
Many factors (financial and otherwise) go into a decision about whether to lease or buy a car. For instance, your choice could depend on how long you typically like to keep your cars or whether you want a brand-new or a used vehicle.
You might also approach car insurance differently for a leased versus an owned vehicle. Certain coverages may be required by law or by your lender, and other coverages may be optional, depending on whether you get a loan or lease, or whether you buy a vehicle outright.
Even though you don't "own" a leased car, you're still required to carry your own insurance on the vehicle, according to the Insurance Information Institute (III). Here are a few coverages to consider for a leased vehicle.
Coverage required by law.
Coverage required by your lease holder.
- Liability coverage: Most states require drivers to carry a minimum amount of liability coverage. Liability coverage may help pay for injuries to other people or damage to their property (such as their car or fence) that you cause.
- Uninsured and underinsured motorist coverage: Depending on where you live, this coverage may be required by law on your car insurance policy. If you're hit by a driver without insurance or with liability limits that aren't enough to cover all the damage, this coverage may help pay for your medical bills or damage to your car (not available in all states).
The company that finances your leased car owns it. To help protect its financial interest in the car, the finance company will likely require you to carry collision and comprehensive coverage as part of your auto policy, says the III.
Coverage that may be included with your lease.
- Collision coverage: May help pay to repair your car if you hit another vehicle or another object, regardless of fault.
- Comprehensive coverage: May help pay to repair your car if it's damaged by something other than a collision, like theft, vandalism or a falling object.
Many leasing companies automatically include what's known as gap coverage in your lease payments, says the III. This coverage may help pay the difference, or "gap," between what you still owe the auto dealer for your lease and what your insurer would pay out if the car is totaled. Be sure to ask your leasing company if they include loan or lease gap coverage as part of your contract, the III says. If not, you may be able to purchase coverage from your insurer as part of your car insurance policy.
When you buy a vehicle, you'll still be legally required to carry liability insurance. Depending on where you live, uninsured and underinsured motorist coverage may also be required. Additional car insurance considerations depend on whether you get a loan for a car, buy a car outright and even the model year of the car you buy.
Getting a loan for a car. When you take out a loan for a vehicle, your lender may require comprehensive and collision coverage on your car insurance policy. You may be able to adjust these coverages on your car insurance policy once it's paid off.
Buying a car new or used car outright (with the title in your name). If you purchase a vehicle without an auto loan (or pay off your auto loan), comprehensive and collision coverage are typically optional on your car insurance policy. A deciding factor may be whether you can easily afford to pay to repair or replace your car out of your own pocket if you get into accident.
Buying a brand-new car. If you're the original owner of a vehicle that's only a couple model years old, you may way to consider purchasing additional coverage specifically for a brand-new car. New car replacement coverage, for example, may help protect your investment in the vehicle if it needs repairs or if it's totaled.
Trying to decide between leasing and buying a vehicle? For details on insuring your car of choice, talk to a local insurance agent