What are the Lease Insurance Requirements vs. the Insurance Requirements on a financed vehicle? This topic causes some confusion and controversy between lease fans and leasing skeptics. As is the case with most aspects of leasing a car, there is a lot of negativity which is not based on truth. When comparing lease insurance with insurance for non-leased cars we have to make sure we are comparing all of the facts that apply to each situation.
Is Insurance for a Leased Car more Expensive?
All things being equal with the type and price of car, the answer is that leasing insurance is slightly more expensive overall, but not nearly as much as some of the leasing naysayers will have you believe. We all hear about the horror stories of shock when a car leasing first-timer discovers what their insurance will cost. This is way overblown. According to an article on LeaseTrader a few years back, the percentage of people trying to get out of their lease because they didn’t understand how expensive their insurance would be is only 4.4%. The lease insurance sticker shock is probably more of a result of going from a used car to a brand new car. Insuring new cars is significantly more expensive than insuring used cars. The collision cost to insure a leased car is virtually the same in the first 3-years as it is to buy the same car new. In the short-term, Car Leasing comprehensive insurance is only a tad more expensive than the cost of insurance on any brand new car that is financed. Where lease insurance requirements are become more expensive is with the liability requirements. Leasing companies typically require much higher liability coverage than the state laws allow. For example, the state of Colorado requires $25,000/$50,000/$15,000 coverage for bodily injury per person, bodily injury per accident, and $15,000 property damage. On my leased cars my requirement is $300,000/$100,000/$100,000. This may seem like a huge difference, but this is what many of the insurance experts recommend anyway. Regardless of how your car is financed, you could be sued for a ton of money if you harm someone or their property in an accident. $15,000 – $50,000 is unlikely to cover it, so you are taking on a big risk driving a car that is under insured. So, maybe it is not such a bad idea to get the same insurance that is required by the leasing companies whether you are leasing or not. The bottom line is that the more stringent lease requirements are as much for your own good as the insurer’s. So, now let’s compare the lease insurance requirements versus insurance requirements of owned cars.
Car Insurance Financed vs Owned
When comparing car insurance costs of a leased car versus a financed or owned car it is important to recognize that the lease insurance requirements of your insurance company are for your own protection as much as theirs. We must also remember that both leasing and buying on a loan are forms of financing. Either way, you don’t own the car when you drive it off the lot. So, if you leased a $30,000 car, the finance company has every right to make sure you have adequate comprehensive coverage to pay for the value loss from an accident. Likewise, if you financed the same $30,000 car on a 60-month loan, the value of the car is the same. In both cases, you are still liable for the balance due on the car and you will need adequate comprehensive insurance to cover it. Though, the requirements may be slightly lower for the financed car since you have made a down payment and are paying it off at a faster rate, don’t you still want adequate coverage for your investment of the quickly depreciating asset? In both cases, the cars are financed and belong to the bank so the liability risks are the same to the extent of the pay-off on the loan or lease. What if you paid cash for the same $30,000 car as opposed to either a lease or a car loan? How does that affect your insurance?
Car Insurance Leased vs Owned
This is just one more area where leasing skeptics and cash car buyers will use exaggerated claims and scare tactics in an attempt to support their anti-leasing bias. Of course insurance on a used car that is paid for is substantially less money than on a brand new car. This is why it is important to compare apples to apples. Whether you own or lease a brand new $30,000 car, you are going to want to have adequate collision and comprehensive insurance. As mentioned above, the liability insurance requirements are higher on the leased car, so it is fair to say that is cheaper to insure a car that you own, especially over the course of the next few years as the car doesn’t require as much coverage based on its depreciating value. The important thing to remember with buying new cars though, is that just because your brand new $30,000 car is completely paid off doesn’t mean your risk of a loss is any less. Over time, it is true that you may care less about keeping your car looking new and protecting your investment. It is also true that as the value of your car declines, you can ask your insurer for a better rate. But, the preference for less coverage is more of a personal choice than a requirement. Of course, it is always cheaper to insure an older car. And, just because you’re concerns over your aging car diminish over time doesn’t mean your risk of liability coverage declines too. Your risk for being sued for causing injury or damage to someone else and/or their property are a constant variable.
Lease Insurance Requirements are for your own Good
The bottom line is that the requirements for insurance are based on personal needs and risks. While it is important to recognize that the lease insurance requirements are slightly more stringent on leased cars, it is also important to realize that the risks of driving the car remain the same regardless of how the car is financed, especially when it comes to liability. While lease insurance requirements for liability are significantly higher than state’s require, the cost for the liability coverage is the same whether you are leasing or buying. If you are in the market for a new car and want to compare the insurance cost of leasing versus buying, simply check with your insurance company first. There is not likely to be too much of a difference, especially if you prefer to have the recommended coverage for liability.