When it comes to getting a new car, leasing is a great option for those wanting the newest models at the most affordable prices. A lease provides lower monthly payments and enables you to drive a car that may cost more than you can comfortably afford. Typically, maintenance costs are included in the terms of the lease, and when the time comes that your lease is up, you can simply switch to another leased vehicle. The rise in leasing won’t be slowing down anytime soon since more consumers now choose a lease over a loan than they did a few years ago.
What does it mean to lease a car?
Simply put, a car lease is a financing agreement where a customers pay to drive a car, but they are not taking a loan to eventually own it. At the end of the term of the lease agreements, customers then return the vehicle to the dealership. The monthly cost of leasing a car is less than buying it outright because it is effectively renting it for a set amount of time, usually 36 months, though there are options for different loan lengths.
When compared to financing the whole price of the car, this usually results in a motorist getting a higher-end vehicle for the same money. The car will either be sold to repay the remaining cost for the lessor or offered to the lessees for purchase at the end of the lease not at the original purchase price, but at the agreed-upon residual market value.
Many people choose to lease a vehicle because lease payments are typically lower than car payments. You pay only the vehicle’s depreciation during the lease term, plus interest charges, taxes, and fees. However, when leasing a vehicle, you do not own the car; you pay to use the vehicle for a fixed period of time and mileage. Let’s walk through what it’s like to drive a leased vehicle.
Advantages of car leasing
- Often covered under warranty for length of term, meaning no extra maintenance costs.
- Most often you’re driving a vehicle when its newest, meaning fewer maintenance issues
- Newest vehicles
- No worry about depreciation
In summary, leased vehicles are typically the newest models and have lower payments.
Insurance on a leased car
When leasing a car, coverage is mandatory, and you will not be able to take possession of the vehicle without it. Each state sets its own insurance requirements, and the amount of coverage you’ll need will depend on the state where your car will be registered. However, your leasing company will likely have certain insurance coverage requirements as well. Most importantly, you must list the leasing company as an additional insured and a loss payee as they are the owner of the vehicle, and therefore entitled to any insurance payout for damages to the leased vehicle.
Coverages often required by state
Each state sets their own minimum coverage requirements, called policy limits, which caps how much compensation or benefits an insurance company will pay in the event of a claim payout, but nearly all require at least liability coverage. There are two primary forms of liability coverage:
- Liability – Bodily Injury (BI) makes life a whole lot easier for other parties involved in a car accident if you were at fault. This type of liability coverage takes care of loss of income, medical bills, legal fees, pain and suffering, and, in a worst-case scenario, funeral costs for the injured parties. “Injured parties” in this case can refer to the other driver and their passengers, as well as any bystanders or pedestrians who were injured as a result of the accident.
- Liability – Property Damage (PD) refers to the amount that your insurance company will pay towards the other party’s car repair costs, or any property damage (fences, landscaping, telephone poles, etc), if you cause an accident.
Some states also require uninsured/underinsured motorist protection as well as personal injury protection (PIP).
Remember – the policy limit minimum set by the state may not be enough to cover all of the damages resulting from an at-fault accident and opting for higher liability limits could protect you and your assets from legal action.
Coverages often required by leasing companies
Similar to when a vehicle is financed through a banking institution, lessors often require you carry first party coverage on a leased vehicle in the event that it is damaged. The coverages most often required are:
- Collision coverage – pays for damages to your vehicle resulting in a collision with an object or a vehicle.
- Comprehensive coverage – pays for damages to your car caused most things other than a collision with an object. For example, flood damages, animal hits, theft, damage from falling objects, and vandalism are often covered under comprehensive coverage.
High liability limits and low deductibles
Lastly, it’s worth noting that leasing companies often have minimum limits and maximum deductibles for each type of insurance where that applies.
For example, General Motors (which includes Chevrolet, Buick, GMC, and Cadillac) requires a collision and comprehensive deductible of $1,000 or lower on all of their leased vehicles. Mercedes’ is higher, at $2,500, presumably because they cater to a clientele that can probably afford the out-of-pocket expense.
Is insuring a leased car too expensive to be worth it?
Since the insurance requirements for a leased car are typically greater, it can cost more to insure a leased vehicle than a financed or owned vehicle. However, leasing a vehicle may give you lower monthly payments than financing, and maintenance costs are usually covered, erasing that out of pocket expense, so car payments and insurance rates are a trade-off.
Leasing a car is a great way to be able to drive a newer vehicle with all the bells and whistles, with a lower monthly payment and no maintenance costs. Insuring it shouldn’t be a hassle, and we make it easier than ever using our coverage wizard tool. Or, if you’re ready to make the move, consider getting a quote today.