Thinking about renting a car? you’re not alone; About a quarter of all new car buyers end up opting for a lease for various reasons, such as worry-free maintenance and the affordability of a new car.
But a key downside to car leases is that most leasing companies will require you to purchase fairly solid insurance. state minimums are not enough; Generally, you’ll need what’s known as “comprehensive coverage” for the life of your lease.
We’ll cover everything you need to know about leased auto insurance, so you can officially decide if leasing is the right decision for you.
insurance requirements for a rental car
Rental cars generally require what’s known as “full coverage”: a combination of liability, collision, and comprehensive coverage. Additionally, leasing companies often require higher liability limits than state minimums, as well as lower deductibles across the board.
This is what leasing companies typically require:
responsibility (higher than state minimums)
in 49 us states plus d.c. (funny look directed at New Hampshire), drivers are legally required to carry a certain amount of liability coverage at all times. Georgia’s rules, for example, are 25/50/25, which means $25,000 bodily injury liability per person (bil), $50,000 bill per accident, and $25,000 property damage liability.
However, because liability coverage protects the vehicle owner from lawsuits, many leasing companies require you to beef up your liability coverage. That especially applies to bodily injury liability limits, as personal injury lawsuits can be expensive.
kia, for example, requires leased vehicles to be covered by 100/300/50 insurance, multiples higher than state minimums.
uninsured/underinsured motorist coverage
Another form of insurance required in many states is uninsured and underinsured motorist protection. This form of coverage protects you from motorists who don’t have enough insurance to cover what they legally owe you (or the dealer) after an accident.
Currently, 22 states require motorists to have uninsured or underinsured motorist coverage. if you live in one of them, your leasing company may require coverage above the state minimum.
Even if you live outside of those states, your leasing company may still require some UIM coverage as it fills the gap left by other forms.
Virtually 100% of dealers and manufacturers require collision coverage on their leased vehicles.
As the name implies, collision protects your car if you are involved in an accident, regardless of who is at fault. it can also cover bumps and leaks. Needless to say, collision coverage fills a big, big insurance gap and helps leasing agents sleep better at night.
In addition to collision insurance, virtually all leasing companies require comprehensive coverage to protect your property. Comprehensive coverage applies to any damage to the car outside the context of an accident.
Comprehensive coverage generally covers theft, vandalism, natural disasters (floods, hail, tornadoes), and falling objects (trees, pianos, etc.).
A friend of mine once had a mysterious water balloon crash through the windshield of his mercedes and burned his center console. Fortunately, that is precisely the kind of situation that covers everything, and why leasing companies require it.
read more: comprehensive auto insurance vs. collision
The last form of insurance often required by leasing companies is differential insurance.
Although gap is technically an acronym for guaranteed asset protection, the image of it filling a “gap” actually works quite well. The gap in question is the difference between the lease payment amount and the actual cash value (ACV) of the car.
As a rudimentary example, imagine you rent a $35,000 car, and a year later you wreck it. So far, you have paid $5,000 in lease payments, but the insurance company is only paying $20,000. who eats that $10,000 in value?
The dealer says yes, but no one wants to sue someone and lose a customer for life. For that reason, most leasing companies purchase differential insurance for you and add the cost to the terms of the lease. If you’re wondering why this is the only form of insurance a leasing company buys for you, it’s because gap insurance is typically a one-time fee, not a recurring cost that can fluctuate.
Even if your leasing company doesn’t require difference insurance, it might be a good idea if the terms of your lease leave you liable for a large difference. “gap wideners” include:
- rent an expensive car
- rent a car that depreciates quickly (sports, luxury, etc.)
- make a small down payment
It’s totally normal to have a frank conversation with your dealer or leasing company to ask for their opinion on differential insurance. they may not require it, but strongly recommend it depending on the specific terms of your lease. Additionally, they may be able to offer you a discount with your preferred gap insurance provider.
high liability limits and generally low deductibles
Finally, it’s worth noting that leasing companies often have minimum limits and maximum deductibles for each type of insurance when it applies.
for example, general motors (which includes chevrolet, buick, gmc and cadillac) requires a comprehensive and collision deductible of $1,000 or less on all of its rental vehicles. Mercedes’ is higher, at $2,500, presumably because they cater to a clientele who can likely afford the out-of-pocket expenses.
tesla requires 100/300/50 liability, which is pretty standard, and a maximum deductible of $2,500, like mercedes-benz. As for the comprehensive and collision limits, you need enough “physical damage insurance” to cover “the full value of the vehicle.” I think what they’re implying is: buy gap insurance, man.