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Car Insurance Lease vs Purchase

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Key takeaways...
  • The decision of whether to purchase or lease a vehicle is influenced by many factors – financial or otherwise.
  • When it comes to a leased vs. an owned vehicle, you will have to approach auto insurance differently depending on your choice.
  • Depending on whether you buy a vehicle outright or you get a lease, some coverage options may be optional; others may be required by the law or the leasing contractual agreement.
  • Typically, liability coverage, underinsured/uninsured motorist protection, comprehensive and collision coverage, and GAP insurance may be a requirement if you choose to go for a lease.
  • The type of insurance required when you buy a vehicle will depend on where you live and whether you took out a loan to pay for the vehicle.

Many factors come into play when making the decision to either lease a car or purchase one. Do you want a used vehicle or a brand new one? How long would you like to keep your car?

These are just some of the factors that affect your decision on whether to buy or lease a vehicle. Whether you choose to buy the car or lease it, you will have to purchase auto insurance if you want to drive it legally. The types of coverages you buy will be a little different depending on whether you take the lease or buy the car.

When shopping for car insurance, take advantage of the numerous comparison tools available. Go online and get as many quotes as you can. Compare the quotes from multiple providers until you get one that fits your auto insurance needs at an affordable cost.

Learn more about auto insurance types below and make sure to use our free insurance comparison tool above today! 

Leasing vs. Purchasing

AdobeStock_111908338-1600x1600The decision to buy or lease a car is driven by several factors including the cost and convenience. For some individuals living in areas with access to reliable public transport or car-sharing services, sometimes it makes a perfect sense to go without wheels.

– Pros and Cons of Buying A Car

Some of the pros of buying your own car include:

  • Owning a car demonstrates that you’re responsible for making regular payments for your car loan and insurance premiums, which could influence your major purchases like mortgages.
  • You can drive as many miles as you want.
  • You can customize your car to match your style.
  • It’s possible to build a better resale or trade-in value.

On the other hand, owning a car can bring some disadvantages, such as:

  • Higher monthly payments as compared to easing.
  • Post warranty repair costs can skyrocket.
  • In case you need to buy a new car, you are responsible for the hassles of selling or trading in your old car.

– Pros and Cons of Leasing A Car

Leasing a car also brings some potential benefits:

  • Lower monthly payments as compared to car loans.
  • Leverage to drive a new car every few years (typically 2 to 3 years).
  • You’re protected by the lease warranty.
  • You don’t need to worry about selling or trading in the car.

However, a few downsides of car leasing include:

  • You should maintain a stable and predictable income source.
  • You must consistently maintain your car in a proper condition.
  • You’re limited to the number of miles you can drive.
  • You will need to purchase GAP insurance.
  • Over a long period of time, you’ll pay more on the car lease.

Getting Insurance for a Leased Car

Dollarphotoclub_60994034-1600x1600 (9)You don’t own a leased car. You will return it to the leasing company at the end of your contract. However, you are still required to purchase auto insurance coverage for the vehicle. Here are some of the coverage options you might want to consider for your leased car:

– Coverage Included In Your Lease

Guaranteed auto protection, or GAP insurance, is a coverage that pays the difference between what you owe and the car’s actual cash value at the end of your lease or in the event of an accident that leaves the vehicle totaled or if the vehicle is stolen. In most cases, GAP coverage is built into your leasing contract.

Check with the leasing company to confirm whether GAP insurance is part of their contract or not. If not, you can arrange for the coverage to be included in the policy you have with your auto insurer.

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– Coverage Required By Your Leaseholder

Though you drive a leased car all the time, you don’t own it. The company that financed your lease owns the vehicle. To protect its bottom line, the leaseholder may require you to purchase collision and comprehensive coverage for the vehicle.

Comprehensive coverage will help you pay for damages resulting from non-crash incidents such as vandalism, falling objects, natural disasters, et cetera. Comprehensive coverage will also replace your vehicle in case it’s stolen.

Collision coverage, on the other hand, protects you from financial losses stemming from a car crash. Collision coverage pays for damages regardless of who’s at fault.

Carrying comprehensive and collision coverage as well as GAP insurance to supplement it helps you avoid any major losses in case your leased car is totaled or stolen.

Be sure to compare quotes from a number of providers before you purchase coverage. Comparison shopping can help you save on auto insurance costs.

– Coverage Required By Law

AdobeStock_66413216-1600x1600Depending on where you live, there are some coverages you may be required to carry by law to be able to drive legally. The majority of the states require drivers to hold auto liability insurance. Some states even go further to require drivers to purchase uninsured/underinsured motorist protection.

Auto liability coverage pays for the resultant damages and bodily injuries in the event of an at-fault accident. Liability coverage will even pay for damages to third party property.

However, this coverage will only pay up to a certain limit agreed upon in the contract. Uninsured/underinsured motorist protection pays for damages if you are involved in an accident with an uninsured driver or in the case of a hit and run.

Insurance When You Buy a Car

If you decide to buy a car instead of getting a lease, you will still be required to purchase insurance. Liability coverage and uninsured/underinsured motorist protection may be required, but that depends on where you live. Additional auto insurance considerations will depend on whether you buy a car outright or you get a loan for it.

Purchasing a Used or New Car Outright

AdobeStock_64564224-1600x1600When you buy a car outright with your own money, you have the freedom to decide what type of coverage you want to get on top of the state-mandated auto liability coverage. It’s your car, and you may choose to forego all the other types of coverages. The only determining factor is your financial ability to repair or replace your car if it’s damaged or stolen/totaled.

Financing Your Car through a Loan

If you took out a loan on your vehicle, your lender might require you to get collision and comprehensive coverage. Once you pay off the loan, you can drop the policies and stick with coverages required by the law. Before you purchase a comprehensive or collision coverage, compare quotes from multiple providers.

Comparing quotes will help you get the best deal on the coverage.

Additionally, if you purchase a brand new car, you might want to consider buying extra coverage specifically designed for a new car. There are several auto insurance products designed for brand new cars out there, get one if you wish to. These types of plans will help you get out of the bad situation in case of theft or an accident that leaves your car totaled.

There are going to be some differences in your insurance coverage depending on whether you buy the car outright or lease it. If you lease it, you will pay more for auto insurance. The circumstances surrounding a leasehold make it that way to minimize losses.

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