Auto insurance

What insurance do you need for a leased car? | Car insurance

If you decide to rent a car, you need to understand your insurance requirements before you sign the paperwork. This guide will help you understand what coverage you should have, how much it might cost, and the best way to get cheap insurance for your rental car.

The type and amount of insurance you need for a car varies by state, but these requirements are the same whether you finance, lease, or own your car. In all states except New Hampshire and Virginia, you are required to have a minimum amount of liability protection, including:

  • Personal injury liability insurance. If you are found guilty of causing an accident, bodily injury coverage will help pay for medical bills and lost wages for people other than yourself or your family who were injured.
  • Property damage liability insurance. This coverage will help pay for any damage to other people’s vehicles or property if you are found guilty of an accident. As with bodily injury protection, this coverage does not apply to you or your family members.

Depending on where you live, you may also need to purchase additional coverage, such as:

  • Uninsured and underinsured motorist insurance. This comes into effect if you are hit by another driver who does not have insurance or sufficient coverage to pay your related expenses. It will also pay if the car is involved in a hit-and-run accident.
  • Personal Injury Protection (PIP). A handful of states require drivers to carry personal injury protection insurance, also known as no-fault insurance. This covers medical costs for you and your passengers in the event of injury in a collision, regardless of who may have been at fault. It does not cover medical expenses for other drivers and their passengers, or repairs to your vehicle or those of other drivers.

Leasing a car requires a payment agreement with a lender, much like financing a car with an auto loan. The lender, or lessor, will usually have additional coverage requirements that you will need to meet to meet the insurance portion of the rental agreement. These are commonly referred to as full coverage because they protect you and the car. In addition to liability insurance, you may need to take out:

  • Full coverage. This applies to damage to your vehicle caused by events beyond your control, such as fire, theft, vandalism, weather events and hitting or being hit by an animal.
  • Collision coverage. This applies to damage to your vehicle caused by hitting another vehicle or an object, such as a fence, railing or building, or if your vehicle rolls over.

Your lessor may require you to have a specific amount of coverage, such as a maximum deductible of $1,000 for comprehensive coverage and collision coverage. You may also need to carry more than the minimum amount of liability insurance prescribed by the state. It is important to check the details of the rental agreement to ensure that you meet or exceed the minimums when purchasing insurance for a rental car.

If your car is stolen or destroyed in a collision, the amount you still owe on your lease (or on your loan, if you financed the vehicle) may be more than the book value of the car. Your insurer’s reimbursement will go directly to the leasing company, which holds title to your vehicle, leaving you responsible for any remaining balance on the loan. For example, if your car is valued at $25,000 at the time of the accident, that is the amount your insurer will reimburse you. If your loan balance is $30,000, you will have to pay the remaining $5,000 yourself.

Gap insurance protects you from such a financial disaster by covering any balance you may owe. It will not provide compensation for things like medical bills, lost wages, or legal fees. You may be offered gap insurance as part of the rental agreement, which will pass on the cost of gap insurance to your monthly payments. You can also purchase gap insurance directly from your insurance company, although not all insurers offer this type of coverage.

Car insurance for a rented car can be expensive because you need to purchase full coverage, rather than just the mandatory minimum. The amount you will pay for rental car insurance varies by company and the city and state in which you live. The year, make and model of the car you rent also affect the cost of car insurance. For example, an expensive sports car may be more expensive to insure than a smaller, safer sedan. Your personal and household characteristics also make a difference, including your age, gender, claims history and driving record.

Although you may have to pay extra to insure a rental car, there are always ways to reduce the overall cost of insuring a rental car:

  • Group your policies: Often, the discount that has the biggest impact on your car insurance premium is the bundled or multi-policy discount. If you insure both your car and your home or renter’s insurance with the same company, you may be able to save on rental car insurance.
  • Compare the prices: Getting at least three quotes from different insurance companies can help you find the lowest rate. Just be sure to get quotes for the same coverages to compare apples to apples.
  • Ask about discounts: Bundling isn’t the only discount option you have to reduce the cost of car rental insurance. You may be able to reduce your premium through savings for safe driving, paying your policy in full, reducing the number of miles driven, and other reductions for working in a specific profession or being a member of an organization.
  • Increase your deductible: Raising your comprehensive and collision deductibles may lower your premium, but you’ll have a higher cost if you have to file a claim. If you’re considering raising your deductible to lower the cost of insuring a rental car, make sure you don’t exceed the maximum deductible stated in your rental agreement.

No, car insurance is not included in a rental contract. This is no different from financing a car, which also does not include auto insurance as part of the loan agreement. Before leasing or financing a car, it’s a good idea to contact your current insurance company to find out if buying a new car will change your rates and by how much. If you don’t currently have car insurance or think you could save money by switching insurers, our car insurance comparison tools can help you find a policy that’s right for you.

The cheapest auto insurance depends on many factors, including the levels of coverage you choose, where you live, your age, and your driving history. Each company also has its own rate structure, so it’s best to get quotes from at least three different insurers to find out which one has the cheapest auto insurance for your personal characteristics and those of your household. Although USAA and Geico often have the cheapest car insurance premiums on average, based on our research, your rates may be cheaper elsewhere.

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