Insuring a Leased Car

Leasing a car? Most dealers won't allow you to drive off the lot until you can show that you have coverage. Notify your insurer as soon as possible after you obtain a new vehicle. That includes if you exchange your leased car for a new one.

Your insurance company will also need the details of your financial institution, including their name and address, and the length of time you will be leasing the vehicle.

What kind of coverage will I need for my leased car?

When you lease a car, your auto insurance policy needs to include the coverages required by your financial institution.

You‘ll need at least the minimum liability and medical expense coverage required by law in your state. Since you do not own a leased vehicle, the company that you lease from (the lessor) may require that you maintain more coverage than the mandatory minimums.

Although physical damage (comprehensive, also known as other than collision, and collision) coverage is usually optional on a car that is owned outright, your lessor may require it on the leased car. With physical damage coverage, you (and the leasing company) can have the peace of mind that you will be able to repair the car after a covered loss. You may wish to discuss any insurance coverage requirements with the leasing company.

Additionally, if you lease your car, you could benefit from adding gap insurance to your policy.

Insuring a financed car

If you choose to finance a car, you own it as soon as you sign the contract. The bank or dealership that holds the loan places a lien on the title. In contrast, when you lease a car, you pay to drive it, not own it.

The bank or dealership may require certain auto insurance limits on the financed car. This ensures that you have the means to continue paying the loan even if you‘re involved in an accident.

Note that your financing terms won‘t change if the car is damaged or considered a total loss — you would still be bound to the terms of the loan. That‘s why it‘s important to maintain adequate insurance coverage. Gap insurance can help to offset the difference between the actual cash value of the vehicle and the remainder of your loan.

What is gap insurance?

The market value of a car is often different from the price you pay to lease or finance it. If your car is damaged and considered a total loss, you could still be responsible for paying the remainder of the lease or loan.

Gap insurance pays for some or all of the difference between the balance of your lease and the claims payout for a covered total loss.

The intention of gap insurance is to address any "gap" in coverage between the actual cash value of the vehicle and the outstanding balance of the loan or lease. If you have a covered gap insurance claim, the car's abnormal wear and tear or high mileage could affect your claim payment.

Gap insurance does not pay for deductibles, prior damage, carry-over balances from prior loans or leases, missed payments, or late fees.

If you‘re interested in adding gap insurance to your policy, act quickly! It‘s only available from NJM within 30 days of leasing the car.

Learn more about NJM Auto Insurance, or explore other auto insurance topics in Ask NJM.

The information and descriptions on this site are general in nature. The coverage afforded for a particular loss depends on the specific facts and the terms, exclusions, and limits of the actual policy. Nothing on this site alters the terms or conditions of any policy, as the policy controls coverage. Coverage options, limits, discounts, deductibles, and other features are subject to underwriting criteria, state availability, and effective dates. Coverage provided and underwritten by NJM Insurance Company and its subsidiaries, 301 Sullivan Way, W. Trenton, NJ 08628.