What You Need to Know About Insurance for a Leased Car

Although state law requires basic car insurance for all drivers, individuals who lease usually need enhanced coverage. If you are looking at leasing a car, it is important to know how leasing works and the kind of auto insurance lessors require.
By Robert C.
Updated Jul 22, 2021
leased car insurance
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Although state law requires basic car insurance for all drivers, individuals who lease usually need enhanced coverage. If you are looking at leasing a car, it is important to know how leasing works and the kind of auto insurance lessors require.

If you’re on the market for a new vehicle and you don’t have the cash to own, leasing could be the perfect choice for you. However, it’s important to remember that the insurance requirements on leased vehicles are often more stringent, and this can affect what you pay each month.

‌According to a study released by Edmund’s, vehicle leasing reached an all-time high in May of 2019, equating to over 32% of the total auto sales market. Although the pandemic and higher interest rates have hampered some growth, many Americans continue to recognize the advantages of leasing over financing or buying their next vehicle. In fact, the vehicle leasing market in the U.S. is expected to exceed $126 million by the end of 2025.

‌Before you commit to a leased car, truck, or SUV, take a few moments to learn more about how car leasing works and what kind of insurance you will likely need. We’ll also explore some frequently asked questions about auto insurance on a leased car so you can make a more informed decision regarding your next vehicle.

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‌What is the Difference between Buying, Financing, and Leasing a Car?

‌The type of agreement you enter with a car dealership will depend on your unique circumstances and needs. For some, purchasing a car outright with cash is the best option, while others prefer to lease a vehicle for a few years before getting another. Before you decide, take a few moments to review the key differences between buying, financing, and leasing a vehicle:


When you purchase a car with cash, you immediately become the owner of the vehicle title and can sell the vehicle to another party at any time. Car owners can choose the level of insurance coverage they want so long as it meets the minimum requirements mandated by their state. Insurance laws and regulations vary from state to state, but basic liability coverage for bodily injury and property damage is mandatory.

Some states like Illinois and Nebraska require coverage for uninsured motorists. Other states like Oregon and Utah have minimum requirements for coverage against personal injury. Check with your state’s Department of Transportation or speak with your insurance agent to determine what type of policy you need.‌


If you’re unable to buy a vehicle with cash, you can also take out a loan with a bank and make monthly payments. Lenders often structure finance plans for new or used cars with terms ranging from 24 to 72 months. Interest rates on auto loans fluctuate depending on the credit score of applicants and where the loan originates. Alternatively, you can work directly with the dealership to finance your vehicle.

Since financed cars are not owned until the loan amount is repaid, auto dealers can require you to obtain collision or comprehensive insurance coverage for the vehicle. For new vehicles, the cost of top-tier coverage along with monthly loan payments can add up to a substantial amount of money. Always get a quote for an auto insurance policy before signing paperwork, and don’t be afraid to ask questions if you’re uncertain about any aspect of your finance agreement.‌


Most people who lease make monthly payments for 1 to 3 years before trading in the vehicle for something new. Since leasing a car is the same as renting, auto dealers can require the lessee to obtain a combination of collision, comprehensive and bodily injury coverage. Leasing is an excellent option for individuals who like to drive something new every few years, but many auto dealers also provide lessees with the opportunity to buy the vehicle at the end of their contract if they choose.

What Kind of Car Insurance do I need for a Leased Car?

Minimum Insurance Required by State Law

‌Whether a vehicle is owned, leased, or financed, all states have their own minimum car insurance requirements. In most states, basic coverage includes bodily injury liability coverage of at least $25,000 per person and $30,000 to $50,000 per accident. In addition, many states also require property damage liability protection, and mandated coverage amounts vary. 

Additional Insurance Coverage your Lessor may Request

‌If you lease a vehicle, the lessor can require you to purchase insurance beyond what is required by state law. Enhanced insurance options like collision coverage protect the vehicle if an accident occurs with another car or an obstruction on the road. With comprehensive coverage, your vehicle will be insured against damage caused by “acts of God” like severe weather, burglary, or other events beyond your control.

‌Common Car Lease Insurance FAQs

If you’ve never leased a vehicle before, you likely have a few questions to ask. While your auto dealer will be happy to walk you through the details of insuring your leased car, knowing what to expect ahead of time can make the process much easier. Here are a few of the most common inquiries people have about insuring a leased car.

‌What is Gap Coverage?

‌Auto dealers may require you to purchase gap insurance for a leased vehicle. Gap insurance protects you from having to continue making payments on a car that is totaled or stolen. Essentially, gap coverage pays for the difference between a vehicle’s value and the remaining balance on the lease. Even if it’s not required, it’s a good idea to consider buying gap coverage for a leased vehicle to ensure you’re not on the hook for any money when unforeseen events occur. ‌

‌Why is it more expensive to insure a leased car than a car I own?

‌When you lease a car, auto dealers are lending the vehicle to you and want to know their property is secure for the duration of the lease. Collision and comprehensive insurance cover the car when accidents happen, but this expanded coverage also increases the cost of premiums. For newer, more expensive vehicles, the price difference between basic coverage and comprehensive can be significant. 

How do I know I’m paying the lowest possible rates for my car lease insurance?

‌Always seek out multiple insurance quotes from different providers before committing to any lease agreement. You can also consider speaking with an insurance provider you already work with to discuss potentially bundling car insurance into your current home, boat, or RV insurance package.

What happens if I decided to end my insurance lease before the end of the contract?

Although it’s possible to cancel a lease contract early, you will still be liable for the remaining balance on the vehicle. You'll also be responsible for any early termination fees and taxes that cancellation may accrue. Bear in mind that terminating a lease agreement just a few months into the contract will cost much more than canceling a lease near the end of the agreement. If possible, speak with your auto dealer about other options like transferring your lease or trading for another vehicle.‌

‌At PolicyScout, we make buying car insurance a simple, straightforward process. Easily compare accurate quotes from today’s top-rated car insurance companies so you can secure the best rates available. Get started in minutes online or call us to find the perfect policy for you.