If you're thinking about leasing a car, you're definitely going to want to read this- especially if this is your first auto lease. Even though leasing a car may seem about the same as financing one at first glance, there are some differences you need to know before you make the decision to lease rather than purchase your vehicle. There are a variety of reasons why people sometimes prefer to lease vehicles rather than finance them. Some love having the ability to trade in their vehicle and drive off the lot with a brand new car every two to three years with no strings attached. Others enjoy the lower monthly payments that they enjoy by leasing their car instead of financing. Whatever your reason, leasing a car may be the best option for you!
However, when your vehicle is a lease, there are certain special considerations you need to make when it comes to your insurance options. Since you are technically not the owner of the vehicle, you need special coverage to ensure that if something happens prior to the end of the lease, you're not stuck with a huge bill and no car. Here's what you need to know about insurance options when it comes to leasing a vehicle.
Anyone who has ever leased a car without purchasing gap insurance and then had something happen to it can tell you firsthand just how important it is! Even though "GAP" officially stands for Guaranteed Asset Protection, it also got its name because it covers the "gap" between what your leased car is actually worth and what you've already paid on it if it should be totaled or stolen. For example, if you lease a $25,000 car and it is totaled three months later, you would still owe the balance of monthly payments associated with the terms of your lease, regardless of whether the vehicle is operational. Purchasing a gap insurance policy protects you in the event of a total loss or theft, meaning you would not have to pay out of pocket to cover the gap amount.
Gap insurance should not be confused with standard auto insurance or an extended car warranty, however; it is an additional type of insurance that can be extremely helpful, but only in the event of a theft or a total loss during the terms of a lease. In other words, gap insurance can't be used to offset any charges incurred for repairs due to regular wear and tear or an accident that causes body damage but does not total the car. (We'll talk more about those types of coverage and why they are important in a minute!)
Did you already lease a new car without purchasing gap insurance from the dealership? Not to worry. It's important to remember that you can purchase gap insurance after the start of your lease date. However, the policy begins the day you purchase the insurance, so it's a good idea to get it sooner rather than later.
Full Coverage Auto Insurance
As the driver of a leased vehicle, you are required by law to carry full coverage auto insurance. This means that, in addition to liability insurance, you must have comprehensive and collision coverage in order for your gap insurance policy to pay out in the event of a theft or total loss.
Full insurance coverage is mandatory when you're leasing a car. The dealership won't even allow you to drive a vehicle off the lot without producing evidence of full-coverage auto insurance. This is so that the car dealer can protect their assets- in essence, leasing a car is like renting an apartment versus owning a house. You are making a monthly payment for the privilege of using the vehicle, but are not the owner. Because of this, the lessor reserves the right to take the car back, or more likely not give it to you at all, without proof that it is well-insured against any damage or theft. Additionally, when purchasing insurance for your leased vehicle, you are required to list the leasing company as an additional insured and loss payee- meaning that if anything should happen to the car, they, not you, will be the ones receiving the insurance check to cover the damage.
Extended Car Warranty
Auto leases usually last between two and five years. Because of this, people who lease get to enjoy having the "new car" experience more often than they would if they purchased a vehicle instead. Being able to turn in a car before the three-year mark can also have its advantages when it comes to not having to come out of pocket for auto repairs or part replacement. While a newer vehicle certainly increases your chances of avoiding car trouble, though, it doesn't get rid of the possibility altogether. For this reason, it's a good idea to look into an extended car warranty that can help make unexpected repairs much more affordable in the long run.
Extended warranties are actually either Mechanical Breakdown Insurance (in California) or a Vehicle Service contract (in the rest of the USA). In either case, be sure to check out Olive.
Leasing a car means being free to try new makes and models of vehicles every few years, and also gives you the opportunity to maintain a much lower monthly payment than you would through financing. As long as you're able to keep your mileage low and make sure you have the right kinds of insurance to protect yourself in a lease, you are in for a great experience!