Why do leased vehicles have higher car insurance costs?

Leased vehicles cost more to insure than vehicles you own because most lease agreements require the lessee to obtain much higher limits of coverage along with low physical damage deductibles.

Lienholders want to make sure they are protected from any liability in the event you cause an accident.

While you will pay quite a bit more in insurance monthly payments there are still many reasons why leasing a vehicle may be the right choice for you. (For more information, read our “How does a lienholder affect car insurance rates?“).

There are pros and cons to leasing a vehicle and we’ll explore some of them below.

Con – Insurance Coverage Will Cost More

Is insurance higher for a leased car? Most lease agreements require a type of coverage that is significantly higher than the minimum insurance requirements for most states.

If you own your vehicle, you get to decide what minimum coverage you purchase as long as you comply with state regulations. If you lease, you’re bound to follow the leaseholder’s increased requirements.

Typically, states require just liability coverage limits which pays for the damages you inflict on others when you’re responsible for an accident. Arizona, for example, requires liability insurance only in the amounts of 15/30/10. This list of numbers means the following:

• $15,000 – Bodily injury liability coverage to pay for the injury costs of one person in an accident
• $30,000 – Bodily injury liability coverage total for more than one person injured in an accident
• $10,000 – Property damage liability coverage to pay for the other party’s vehicle or property

Read more:

• Do I need full coverage car insurance to lease a car?
• Do I need car insurance to lease a car?

Leaseholders will typically require you to carry more coverage than the state coverage requirements. This increased coverage will result in increased monthly lease payments. The following is a list of auto coverage that is often required for leased vehicles:

A list of typically-required insurance coverage for leased vehicles.
Created for https://www.carinsurancecomparison.com/why-do-leased-vehicles-have-higher-car-insurance-costs/

Required Coverage	Protection Provided
Increased liability coverage, typically in the amount of 100/200/50	Covers costs for damages and injuries of the other party when you are at fault in an accident
Comprehensive coverage (maximum $500 deductible)	Protects against losses due to fire, theft, vandalism, and collisions with animals. The deductible must be paid before insurance covers.
Collision coverage (maximum $500 deductible)	Pays for damages to your vehicle after a collision
GAP coverage	If your car is totaled, GAP will make up the difference between what your car is worth and what you owe

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Pro – A Lease Offers Freedom and Different Ways to Save

There are still several reasons why you may want to consider leasing versus purchasing a car despite the higher rates you will pay for your insurance:

• A leased vehicle provides you with a decent tax deduction. Lease payments can usually be written off while car loan payments are not deductible (read our “Is car insurance tax deductible?” for more information)
• A lease gives people the freedom to get new cars more often. Most lease agreements are for 36 months or less allowing the lessee to have a brand new car every three years
• A leased vehicle is almost always under warranty for the term of the lease saving you money in general repair costs and tune-ups

If I do decide to lease a vehicle what are some ways I can save on my insurance?

There are still several reasons why you may want to consider leasing versus purchasing a car despite the higher rates you will pay for your insurance:

• A leased vehicle provides you with a decent tax deduction. A lease payment can usually be written off while car loan payments are not deductible
• A lease gives people the freedom to get new cars more often. Most lease agreements are for 36 months or less allowing the lessee to have a brand new car every three years
• A leased vehicle is almost always under warranty for the term of the lease saving you money in general repair costs and tune-ups

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If I do decide to lease a vehicle what are some ways I can save on my insurance?

While you will have to comply with the lien holder’s requirements for insurance if you want to lease, there are still several ways you can save money on your insurance premium.

Following is a list of ways you can lower your rates even with a leased vehicle:

• Investigate insurance rates by vehicle – Four-door sedans are viewed as more conservative vehicles and cost less to insure than two-door sportier cars
• Bundle policies – Consider using the same insurance provider as you are currently using for your homeowner’s or life insurance. By bundling insurance policies with the same company you can often save yourself a lot of money
• Look for safety features –  Insurance providers often give discounts for added safety features such as anti-lock brakes and anti-theft devices
• Drive few miles – Car insurance companies often charge less for cars that are driven fewer than the stated number of miles annually. For leased vehicles, you often cannot go over a certain mileage anyway so you may be eligible for a low-mileage discount
• Park in a garage – If you have access to a garage or even a driveway you will save more money compared to parking your car on the street
• Pay your premiums upfront – If you can manage to pay your premium each year in one lump sum you will save more money than paying in monthly payments or bi-monthly installments
• Take a class – Some insurance companies offer discounts if you agree to take a safe driving course
• Improve your credit score – Get your credit rating in check. This means staying up to date on debt payments. Most insurance companies now use credit scores as a means of determining who is a higher or lower risk factor to insure

When determining if you will lease or purchase a vehicle you need to weigh the pros of leasing versus the cons of insuring a leased car. There are many ways you can save even when you must operate within the terms of your lease agreement.

Read more: How do I find out if GAP insurance is included in my car lease?

Find out why insurance is higher on a leased car. It is best to get started by shopping around and getting quotes from several insurance providers even before visiting the car dealerships. By doing a little legwork you can save yourself a bundle of money in the long run.

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Case Studies: Why do leased vehicles have higher car insurance costs?

Case Study 1: The Higher Liability Limits

Sarah leased a new car and was surprised to see a significant increase in her car insurance costs compared to her previous vehicle. Upon reviewing her lease agreement, she discovered that the leasing company required her to carry higher liability limits of $250,000 per person and $500,000 per accident.

These increased limits ensured that the leasing company was adequately protected in the event of a liability claim, resulting in higher insurance costs for Sarah.

Case Study 2: Comprehensive and Collision Coverage Requirements

John decided to lease a luxury SUV for his business. While exploring insurance options, he realized that the lease agreement mandated comprehensive and collision coverage on the vehicle. This additional coverage protected against theft, vandalism, and damages from accidents.

As a result, John’s insurance costs were higher compared to if he had owned the vehicle, as he had to fulfill the lease requirements for comprehensive and collision coverage.

Case Study 3: Gap Insurance Coverage

Lisa leased a brand new electric car and was excited about driving it. During her insurance research, she learned that lease agreements often require lessees to have gap insurance coverage. Gap insurance covers the difference between the actual cash value of the vehicle and the remaining lease balance in the event of a total loss.

This added coverage increased Lisa’s insurance costs, as she needed to meet the lease requirement to protect against potential financial loss if the vehicle was totaled.

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