Car Leasing With Insurance: What You Need to Know

Leasing a car often means you’ll have lower upfront costs compared to buying a vehicle. And although you’ll need to pay for car insurance whether you lease or buy your next set of wheels, you might pay more for insuring a leased car.

Car leasing insurance requirements

When you lease a car, you’ll need to satisfy both your:

• State’s minimum car insurance requirements.

• Leasing company’s insurance requirements.

In some cases, this may mean you need to get more insurance if you lease a car instead of buying it outright.

State car insurance requirements

Whether you finance or lease your vehicle, you’ll have to meet your state’s minimum car insurance requirements. Both the amount of coverage and the kind of insurance you’ll need to buy differ by state.

Depending on where you live, required coverage may include:

• Bodily injury liability coverage

  , which pays out if you injure someone else in an at-fault car accident. It also covers lost wages if the injured person can’t work due to the crash.

• Property injury liability insurance

  , which covers damage to another person’s vehicle or property in a crash you caused.

• Uninsured and

  underinsured motorist coverage

  , which pays out if you get into an accident that you didn’t cause and the other driver doesn’t have enough (or any) coverage to pay for your medical expenses or car repairs.

• Personal injury protection

  , or PIP, which pays for you and your passengers’ medical expenses resulting from an accident regardless of fault. It can also pay for lost wages, funeral costs, child care and other services you can’t perform due to injuries from the crash.

• Medical payments coverage

  , or MedPay, which covers medical expenses for you and anyone in your car at the time of the crash, whether you caused the accident or not. It can also cover funeral costs after a fatal crash.

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Once you know the coverage you want, compare auto insurance rates at least once a year to find the cheapest insurer for you.

Leasing company requirements

Leasing companies often require higher liability limits than state minimums, which will cost more. Beyond the coverage your state requires, you’ll likely need to buy:

• Collision coverage

  , which pays to repair your vehicle after most car crashes.

• Comprehensive coverage

  , which covers damage to your car from most events besides a traffic collision. This includes damage from hail, flooding and even riots.

Adding these to liability insurance would create a full coverage insurance policy. Although this is more expensive than opting for your state’s minimum required insurance, NerdWallet recommends building up your coverage beyond those minimums, which are often not enough to protect your financial standing if you cause a bad accident, even if your car leasing company doesn’t require it.

Here is the average annual cost of full coverage auto insurance in every state, for 35-year-old male and female drivers with no recent accidents and good credit, according to NerdWallet's analysis.

Average annual car insurance costs for full coverage by state

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Gap insurance for a leased car

Depending on your lessor, you may also need gap insurance, which pays out if you total your vehicle. This coverage pays the difference between the value of your vehicle at the time of the crash and how much you owe on your car loan or lease.

For example, let’s say you lease a car for $35,000, and a week later you total the vehicle. The car is worth $33,000 at the time of the crash. Gap insurance will cover the $2,000 difference between your car’s value and the amount you still owe on your lease, which is covered by collision insurance.

A dealership might automatically include gap insurance when you lease your car, so always check your lease agreement. To avoid paying interest on gap coverage, NerdWallet recommends you purchase gap insurance through an insurer if possible, not your dealership.

Insurance for leased cars at a glance