Auto Insurance for Leased Vehicles

If you lease a car, the car is technically the property of the lending agency. For this reason, some drivers may think they do not need to purchase insurance on their leased car. In fact, drivers do need to insure their leased cars and failure to obtain the proper auto insurance when leasing a car can have serious ramifications.

Liability Insurance

Almost all states require that drivers carry a minimum standard of property liability and personal injury liability coverage. Even though a person may not own his or her car, he or she will be liable for the damage he or she may cause in an accident. Personal injury and property liability covers the cost of this damage.

Collision and Comprehensive Insurance

The dealer or lending agency that finances the car will want to protect it, meaning they will probably require that the driver carry both collision and comprehensive insurance. Collision insurance covers damage to the driver's car as a result of an accident where the driver collides with another car or object. Comprehensive insurance covers damage to the driver's car as the result of something else, such as vandalism, theft or fire.

Gap Insurance

The lender providing the car may also have the driver carry gap insurance. Gap insurance covers a situation where the leased car is totaled due to an accident. The amount the driver will receive in insurance will be based on the actual cash value of the car at the time of the accident. This may be less than the driver owes the insurance company on the lease. The difference between these two amounts is "the gap," and this is the amount covered by gap insurance so that the driver does not have to come up with additional money out of his or her own pocket.

There is no separate "gap insurance policy." The gap coverage is usually worked into the lease payments, and the lessor will have the lessee sign a "gap waiver." This waiver states that the driver agrees to pay a higher rate in exchange for protection from having to pay extra money if the car is totaled. Drivers who own their own cars but are still paying off an auto loan for the vehicle are advised to seek out gap insurance in order to protect themselves from having to continue to pay off a car after it is totaled.