Buying or Leasing a Car: How Insurance Differs

two lanes of cars on the road

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We’ve talked about how to decide between buying and leasing a vehicle, and how to best finance either decision, but auto insurance rates are another important factor when considering a new vehicle. Below, all the details you need to know about how much it really costs to insure leased and purchased vehicles.

Keep in mind: we’re talking about buying a car outright, not financing. Financing has unique insurance requirements (set by each lender) and they often look similar to the requirements for leasing.

When leasing a car, you usually need to carry higher liability limits than the state minimum.

Insurance Options: When Do You Have Them?

We all know that driving in the U.S. requires a minimum level of auto insurance (and even in the one state that’s an exception to this rule—New Hampshire—forgoing insurance means proving financial ability to pay for the other party’s repairs if you’re at fault).

Drivers have a lot of insurance options above and beyond the state minimum, though. For example, in most cases, the state minimum covers only covers bodily injury and damage to another party’s property if you’re at fault—almost every state minimum policy therefore leaves the actual insurance policy owner to their own devices when paying for their repairs. If you own your car and you’d like coverage in the event you’re involved in a wreck and at a fault (or if you want other add-ons), you have the option of purchasing that coverage.

But, if you’ve got a real clunker and the expense of extra coverage just doesn’t make sense to you, you don’t have to purchase anything extra. Even if you have a newer car—even a brand new car—you aren’t required to purchase anything more that your state’s minimum.

However, leasing is a whole different story. When leasing, you usually need to carry $100K/$300K bodily injury liability and at least $50K in property damage liability limits (meaning $100,000 per person/$300,000 total bodily injury liability per accident and $50,000 in property damage liability per accident) and $500 comprehensive and collision deductibles. These limits are higher than state minimums and the optional $1,000 deductibles many insurers offer that keeps rates lower.

If you’re considering leasing a vehicle, go through all of the insurance requirements and costs with the dealership or leasing company before signing on the dotted line. Leasing makes sense for a lot of people, but you want to know exactly what you’re getting into.

Contract with pen and calculator

The GAP Insurance Factor

GAP insurance—Guaranteed Auto Protection—covers the “gap” between what you owe (on a leased or financed vehicle) and what your insurance will cover in the event of a total loss. GAP insurance is an option whether you buy or lease, and while there are important reasons why someone buying (and financing) a new car might choose to add GAP (see our list, it isn’t a requirement. But, GAP insurance almost always comes into play when leasing a vehicle and the GAP insurance requirement is one of the biggest insurance differences between buying and leasing.

Mark Rabkin, president of From Car to Finish, tells us that if you’re leasing a car, you will almost certainly be required to carry GAP insurance:

“Lenders want to make sure there’s GAP insurance covering the leased vehicle. If a leased vehicle is in an accident and considered a total loss, GAP insurance is designed to cover the difference between what a lessee still owes on a lease vs. what insurance will pay (i.e. the gap). GAP insurance is mandatory for most lease programs, and is included in quite a few at no additional charge.”

As for cost? Rabkin told us that “GAP insurance premium costs are in the hundreds for a typical lease.” So be sure to ask for GAP insurance pricing details before taking on a new lease.

Rabkin added that Toyota is one of the few large auto companies that doesn’t require its lessees to carry GAP insurance; most others do.

Cover the gap between what you owe on a vehicle and what your insurance covers in the event of loss.

Ask an Agent

We asked The Zebra’s own expert insurance agent, Jeff Medina, for the bottom line: is insurance less expensive when buying (versus leasing) or more? Medina told us it’s tough to give an answer that would apply to every case, as so many factors play into insurance rates (credit, proof of prior insurance, driving record, vehicle type, and the zip code where the vehicle is garaged being the most important factors).

However, Medina said, “If you look at just pricing with coverages, leasing would be more expensive due to the higher limits of liability and a $500 deductible.” He explained that when buying (note: we’re talking about buying outright, not financing), you can purchase your state’s minimum and accept a higher deductible ($1,000) which would make your monthly auto insurance premium less expensive.