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What Amount of Liability Coverage Do Car Lease Companies Require?

Finance | 12/14/2022 12:03
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When you lease a car you will have certain restrictions and requirements that you will have to adhere to, and one of those is the amount of insurance that you carry. Since you do not own your leased car, the dealership will require a certain amount of liability coverage to protect its asset. So just how much liability coverage do they require, and what are the other requirements of leasing a car?

Let’s talk about how much insurance coverage you need to have when leasing a car.

What are the requirements for insurance on a leased car?

When you lease a car you are essentially renting the car from the dealership. There are pros and cons to leasing, but in general it is much cheaper to lease a car. This is because you are only making payments on the depreciation of the car while you are driving it, as opposed to making payments on the total value of the car.

But because it is not your car, you don’t get to make all of the rules. Dealerships have a number of restrictions and rules set up to protect their asset, including:

  • Mileage allowances. You cannot drive over a set amount of miles per year. This typically ranges from 10,000-15,000 miles.

  • Replacement and repair requirements. You must use OEM parts and use a certified mechanic to make all repairs.

  • No customization. You cannot add on anything to make your car your own, such as bumper stickers or tinted windows.

  • No rideshares. If you are a driver for Uber, Lyft, or another rideshare company, you will not be able to use your leased car for work.

  • No out of country trips. Most leases prohibit you from leaving the United States in a leased car.

  • Insurance requirements. Dealerships will require a certain level of coverage on their leased car.

These restrictions might be enough for some people to walk away from leasing. But for some these restrictions are far outweighed by the benefits of leasing. One of the biggest benefits is that leasing a car is much cheaper than financing a car. 

Increased insurance requirements however can tick the price upwards on the price of lease. But what are these requirements exactly?

Leasing Company Insurance Requirements

Leasing companies will require you to have both collision coverage and comprehensive coverage on your leased car. 

  • Collision coverage: pays for damage when there is an accident with another vehicle or object.

  • Comprehensive coverage: pays for damage caused by something outside of your control, such as theft or fire.

Most lessors will require a higher bodily injury liability limit (typically $100,000 per person and $300,000 per accident). Lessors may also require property damage liability coverage (typically $50,000).

State Minimum Insurance Requirements

The state minimum insurance requirements vary from state to state but the requirements are the same whether you lease, finance, or own a car outright. You are typically required to have liability coverage including:

  • Bodily injury liability: covers medical expenses for others when you are at fault.

  • Property damage liability: covers damage to property when you are at fault.

The Cost of Insurance While Leasing

So just how much more money will it cost you on your insurance when you lease a car as opposed to finance? That answer isn’t very cut and dry. Your insurance premiums will depend on:

  • The coverage you select

  • Your driving history

  • Your claim history

  • Your annual mileage

  • The type of car you drive

  • Your age

  • Your gender

  • Where you live

  • Your credit score

While leasing will cost you more due to your increased coverage requirements, there are a lot of other factors that affect your insurance rates. But even with the increased cost of insurance due to leasing, you will most likely still pay much less per month when you lease instead of finance.

Is it worth it to lease a car?

How do you know if it’s worth it to lease a car? There are a lot of pros and cons that should be considered when trying to decide if leasing is right for you.

The pros of leasing

The biggest advantage of leasing is that it is much more affordable than financing a new car. Car lease payments are calculated based on the depreciation that occurs while you are driving your car, and not on the total value of the car. In fact, lease payments tend to be 30-60% lower than financing payments.

But in addition to affordability, leasing has other key advantages:

  • You don’t have to worry about selling your car when your lease is over.

  • You can get a new car every few years

  • Your warranty will cover most repairs and some maintenance.

  • You can maximize tax deductions.

  • You can buy your car lease at any point if you change your mind.

The cons of leasing

While there are a lot of advantages to leasing, it’s certainly not for everyone. The disadvantages of leasing include:

  • You do not build equity with your payments.

  • You have a lot of restrictions (discussed above), and misuse of your car can lead to heavy fees.

  • There are early termination fees if you wish to return the lease.

What should I know before I lease a car?

If you decide that leasing a car is right for you, you should do your research to ensure you are getting the best deal possible. Here are the top things you should know before you lease.

What is the cost of the vehicle? 

Choosing a car that is less expensive will result in lower monthly payments AND lower insurance payments. Once you narrow down on the vehicle, be sure to shop around. The lower the MSRP of the car is, the lower the monthly payments will tend to be. You can actually negotiate on this when you decide to lease (this is called the capitalized cost in leasing terms). Your payments and residual value will be based on this number. Use sites like Kelley Blue Book and Edmunds to make sure you are getting a fair price.

What are the taxes and fees?

There will certainly be taxes and fees with your leased car. Taxes will be added onto your monthly payments, and sometimes the fees can be rolled into your monthly payments as well. 

At the start of the lease you will be required to pay a security deposit as well as an acquisition fee (which is essentially a fee of doing business).

At the end of the lease you may be required to pay the following fees:

  • Excessive wear and tear fees

  • Mileage overage fees

  • Disposition fees 

What is the residual value of the vehicle?

The residual value of the car is how much your car is expected to be worth at the end of the lease period. This is also the amount that you will pay (plus taxes and fees)  if you choose to buy your car lease. You cannot negotiate this as it is typically a standard rate per model.

What are the use restrictions?

Be sure you know exactly what the restrictions are, and know whether or not you can abide by them. Is the mileage limit too restrictive? Are the wear and tear fees too severe? Are the insurance requirements fair to you? Make sure you understand all of the fine print in your lease agreement.

How much is due at signing?

Know how much you are expected to put down at singing. Leasing a car is different from financing, and it is not advised to put a large amount down when you sign a lease. But the more you put down the less your monthly payments will be. Keep in mind that if you put a large amount down and something happens to your car, you won’t be able to get that money back.

What are the end of lease requirements?

When your lease is up, what are your options? What fees are you required to pay, and how much will it cost to purchase your car? Be sure you understand this part of your lease agreement. 

End of car lease buyouts are a great option in today’s auto market. Since residual fees are predetermined, chances are the current market value of your lease is higher than the residual value. This means that you can buy your car for a much lower price than it is worth. You can either buy your lease out and keep the car, or you can sell it and make a nice profit. Either way a car lease buyout loan from Auto Approve can help you with this. And once you buy your car lease, you can drop to whatever level of insurance you wish (so long as it meets your state’s minimum requirement.)

That’s what you need to know about car leases and car lease company insurance requirements.

If your lease is ending and you are thinking about buying your car, get in touch with Auto Approve today! It’s a great time to think about a car lease buyout, and our agents are ready to help you get started.


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