Costs of
insuring your leased vehicle
You need to know about the
'hidden' costs of insurance and the ramifications of crashing a leased vehicle --
especially if you 'total' it.
By insure.com
As if you didn't have enough to worry about in understanding the
fees involved in your lease contract: You've got early-termination costs, extra-mileage
surcharges and wear-and-tear fees. But you also need to know about the "hidden"
costs of auto insurance required by the lease and the ramifications of crashing your
leased vehicle -- especially if you "total" it. .gif)
Most leases require you to purchase more
auto insurance than your state's minimum liability coverages. For example, you'll likely
have to purchase liability coverage of $100,000 per person and $300,000 per accident for
bodily injuries, and $50,000 worth of liability insurance for property damages (also known
as 100/300/50). Most states' minimum requirements are about one-quarter of that.
In addition, you'll probably be required by the lease to buy
collision and comprehensive insurance. These coverages pay for losses due to fire, theft,
vandalism, civil riot and collisions with animals. Both coverages require a deductible,
and depending on your lease contract, those deductibles are subject to a cap. For example,
a Chrysler Gold Key lease says that your collision deductible can be no more than $750 and
your comprehensive deductible can be no more than $500.
Without gap insurance, you'll have a 'total' nightmare
Many lease contracts include gap insurance -- coverage that will
pay the difference between what you owe on your car lease and what the insurer pays in
case your car is "totaled." Your insurer has the option of either
"totaling" your vehicle -- paying you or the lienholder the actual cash value of
the car -- or repairing the vehicle after a bad accident. (Insurers generally will total
the car after damages surpass 70% of the vehicle's worth.) If your insurance company
totals your leased car, whether or not you receive the insurance proceeds directly is of
little consequence. Chances are good that you'll have to turn all of that money over to
the lienholder, but that's no guarantee you've satisfied your lease contract.
Leases can limit your choices
Most car leases limit your insurance shopping flexibility by
requiring you to purchase higher-than-minimum levels of liability, comprehensive and
collision coverages. Some even require you to purchase uninsured motorist coverage. While
the more-robust coverage is a good idea, regardless of your auto-financing situation,
lease requirements can limit your financial flexibility.
Insure.com surveyed three cities -- Trenton, N.J., Sacramento,
Calif., and St. Louis -- to illustrate the average insurance-cost differences between
leasing a vehicle and owning or financing one. For our survey, the leased vehicle's
coverage includes: liability limits of 100/300/50, comprehensive and collision coverages
and uninsured/underinsured motorist coverage equal to the liability limits. For
comparison, the owned vehicle's auto insurance includes: liability limits of 50/100/50,
comprehensive coverage and uninsured/underinsured motorist coverage equal to the liability
limits. The driver is a 35-year-old married male with a good driving record.
|
Sacramento, Calif. |
St. Louis |
Trenton, N.J. |
Lease
(100/300/50) |
$830 |
$1,818 |
$1,170 |
non-lease
(50/100/50) |
$491 |
$1,125 |
$1,124 |
|
It's not uncommon to still owe money to
your lienholder after turning over the "total" insurance proceeds. That's where
gap insurance comes in to play. It will pay the remaining lease bill so you can start
fresh with a new lease or a new financing deal. If your lease contract does not include
gap insurance, it's a good idea to shop around for the best price. Gap insurance premiums
run the gamut, but without it, you could be stuck with hefty payments on a car you no
longer drive, plus the payments for your replacement car. Ouch!
One important stipulation of many lease contracts that include
gap insurance is that if you don't buy the required comprehensive and collision coverages
and your car is totaled, you will not receive the gap
coverage.
In addition, until you or the lienholder receives the insurance
proceeds, you should continue making your regular monthly car-lease payment. It's
conceivable that if you stop your payments, your loan could default, creating all kinds of
ugliness on your credit record. A loan in default can hinder your ability to get new auto
financing and new auto insurance at worst; it can raise your loan's interest rate or auto
insurance premium at best.
Scrutinize your repairs
After an accident, if your insurer decides to repair your
vehicle rather than total it, make sure the repairs will not create further problems for
you at the end of your lease. Most lease contracts say you're responsible for "excess
wear and tear." That includes any damage, even if it's covered by insurance. The
bottom line is that you want to return your vehicle to the dealership in the same
condition as when your lease began.
Make sure all the paint matches, your tires match and that your
vehicle is repaired with original equipment manufacturer (OEM) parts. If you don't, you
are responsible for the repair or replacement of any and all of these at the end of the
lease period. Find out about your insurer's rules when it comes to replacing sheet metal
parts after an accident. Some insurers will pay for OEM parts if the vehicle is two years
old or newer or has fewer than 20,000 miles on it. Some will allow OEM parts to be used
but will require you to pay the difference between an aftermarket or salvage part and an
OEM part. Whether or not your insurer has to pay for OEM
parts is still a matter of debate.
Leasing a car might be an affordable option, but if you're
involved in an accident, failing to meet the lease's terms can trigger significant extra
costs and inconvenient scenarios that can lighten your wallet and sour your driving
experience.
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