Leasing a car doesn’t in any way reduce your liability on the insurance cover for the car. You have to have the car insured, just like you would do if you owned the car. The only difference is that you name the leasing company as insured in the policy. Leasing companies, in general, do not permit just the minimum insurance but insist on policies where all risks are covered.
A comprehensive or collision coverage policy is a must-have in case of total loss or damage to the car. A collision insurance policy covers the damage to your leased car, caused by an accident involving another vehicle or object. A comprehensive insurance policy covers the losses caused by damage other than a collision, like a fire accident or theft. Mechanical wear and tear insurance and breakdown insurance are also necessary for the car. Some lease companies specify that only Original Equipment Manufacturer (OEM) parts, are to be used as a replacement. They are more expensive than after-market parts. Make sure your policy includes the clause of OEM parts so that the cost is taken care of.
Gap insurance covers the “gap” between what the insurance company will pay in the event of a total loss and the amount you owe your car leasing company. As all the costs associated with the car are rolled into the monthly lease payment, it is certainly possible you may owe more than the car is worth. For example, a situation wherein you have leased your car and it has been valued at $30,000 with an additional $10,000 for interest and charges. Let us assume the insurance company values your car at $20,000. In case of an accident, total loss, or if your car is stolen, you may not be able to cover the cost of the car that is payable to the car leasing company. In this situation, a gap insurance policy will be useful.
In many lease agreements, gap insurance cover is built into the contract, so check the lease agreement to confirm this. Sometimes the word lease insurance in the leasing agreement may include gap insurance. Always read the lease agreement and clear all doubts.
If you don’t have the gap insurance policy as a part of your lease agreement, you can add it your auto insurance policy or you can buy it separately. A general rule of thumb is that a car depreciates by about 10% of the Manufacturer’s Suggested Retail Price (MSRP) the moment it is driven out of the showroom. All that you have to do is compare your total cost which includes taxes and all lease costs to the car’s MSRP and check the “gap” from the start to avoid under insurance.
As the monthly payments are made and depreciation is being accounted for, the “gap” reduces. The gap insurance may not be necessary after a certain point, as you would have paid part of the value of the car and the remaining will be taken care of by the auto insurance policy.
It is better to buy the insurance from auto insurance companies, rather than the leasing company as they are then less expensive in comparison.
