Insurance Requirements: What to Know Before Leasing or Buying a Car

happy couple buying a new car with insurance

Leasing or buying a new car is an exciting time. But it comes with a lot of responsibility. In addition to figuring out your financing and down payment, you also need to think about insurance.

Insurance requirements vary depending on whether you’re buying or leasing. They can also vary depending on where you live and who you’re working with.

Let’s take a look at car insurance requirements you’ll need to satisfy whether you’re leasing or buying your vehicle.

First Things First: What Is Car Insurance?

Car insurance is a way for you to protect yourself financially if you’re in an accident. It pays for any damage you may cause, so you won’t go broke covering those bills.

There are only two states where you’re not legally required to have car insurance: New Hampshire and Virginia. That said, they both have financial responsibility laws, so to opt-out of having insurance, you’ll need to show proof you can pay for any damages related to an accident.

The main type of coverage required in all states is liability insurance. This type of insurance pays for bodily injury and property damage in an accident you cause. Most states have certain minimum requirements for this type of coverage. For example, in Washington state, the minimum coverages are:

  • $25,000 of bodily injury coverage per person
  • $50,000 of bodily injury coverage per accident
  • $10,000 of property damage coverage per accident

You might see this notated as 25/50/10 when shopping for a policy.

While liability is the only required insurance in each state, it’s not the only kind available. You might also want protection for your own vehicle in the form of comprehensive or collision coverage. These pay for repairs to your vehicle from an act of god, hit and run, and more.

Uninsured and underinsured motorist coverage is also popular. It protects you if you’re hit by a driver who doesn’t have insurance. Some people also like medical payment insurance for extra protection for medical bills in an accident.

Insurance Requirements for Leasing a Car

You’re in the process of leasing a brand new car. Before you can drive it off the lot, the dealer will likely require you to sign up for numerous kinds of car insurance. These include liability insurance, comprehensive and collision insurance, and gap insurance.

Liability Insurance for Leased Cars

As we mentioned above, it’s a requirement in nearly every state to have liability insurance. Your dealer doesn’t want to be involved in breaking the law, so it will require you to have the state minimum at the very least. Most companies do require you to have more than that, though.

You’ll also need to make sure your dealer is listed as an additional insured and loss payee. That way, the insurance company money can go directly to them instead of you having to receive a check and then forward it to the dealer.

Comprehensive and Collision Insurance for Leased Cars

It’s a good bet your dealer will also require you to have comprehensive and collision coverage as well. Most leased cars are new, meaning they’re in great shape with little to no damage. Comprehensive and collision coverage will ensure they stay that way.

Collision coverage is important because it pays for damage to your car in an accident. This might be an accident you caused or an accident where someone hit you and fled the scene. Comprehensive, on the other hand, covers all other damage that’s not from a crash.

Gap Insurance for Leased Cars

Gap insurance is another common insurance requirement for leased cars. That’s because it protects against the car’s depreciation. It specifically covers the difference between the actual value of the car and the amount you owe.

Cars depreciate at a rapid rate once you leave the lot. So much so, in fact, that the car might actually be worth less than what you still have to pay on it. So if you’re in a serious accident and total the car, gap insurance will ensure you get the full amount you owe on the car. You can choose to get this kind of coverage directly from the lessor or your car insurance company.

Why Do I Need Extra Car Insurance When Leasing?

Here’s the thing about leasing — you don’t technically own the car. You’re just borrowing it from the dealer for a set amount of time. Because of that, they have the last word with what kind of insurance you’ll need.

And more often than not, they want to know their investment is protected. Insurance plans give them that peace of mind. They don’t know how good of a driver you are (or aren’t). Even if you’re the best driver in the world, accidents happen.

The dealer can make sure the car is still in good shape by requiring additional insurance coverages when you return it to them. When they calculate the price of leasing the car out to you, they consider the depreciation the car will suffer while it’s in your hands. A car with multiple dents and scratches will be worth far less than they initially calculated, meaning they’ll end up losing money. With insurance, you can get these things taken care of so the dealer doesn’t lose any of their investment.

happy couple buying a new car with insurance

Insurance Requirements for Buying a Car

Buying a car is a bit different than leasing. If you buy your car outright with cash, the only insurance coverage you’ll need is your state minimum. But, if you’re like most people and need to take out an auto loan for your new vehicle, your lender can stipulate additional insurance coverages. These typically include liability, comprehensive, and collision coverage.

Liability Insurance for Financed Cars

Again, like with a leased car, you’ll need your state’s minimum insurance for your purchased car. And this is not a time to skip out and be cheap. If your lender finds out you don’t have insurance, they have the right to repossess the vehicle or demand full repayment of the loan. These are serious consequences that could leave you vehicle-less and in big financial trouble.

Comprehensive and Collision Insurance for Financed Cars

Similar to leasing, your bank wants to make sure your car stays in good shape. That’s why it requires comprehensive and collision coverage. The reasoning is pretty much the same, though in this case, it benefits you even more. That’s because since you signed the contract to buy the car, you’ll be on the hook if you’re in an accident and total your vehicle. So making sure it stays in good shape is crucial to making sure you don’t lose all of your investment.

What About Gap Insurance?

The good news — most lenders don’t require you to have gap insurance when you buy a car. But that doesn’t mean you should skip it. After all, if your car is totaled in an accident, you’ll still need to pay off the loan you took out. Having gap insurance can make sure you get the funds you need to pay off the car, so you’re not stuck making payments on something in a junkyard.

Why Do I Need Extra Car Insurance When Buying?

Like leasing a car, you don’t actually own it outright at first (unless you pay cash, that is). Your lender will be the one who holds the title of the car until you pay it off. And because they technically own the car, they can stipulate what kind of coverage you need.

Like dealers, they’ll want to make sure their investment is sound. If you can’t make your payments for some reason, they have the right to repossess the car and sell it off for cash. They won’t be able to do that if it’s in bad shape after an accident.

Leasing vs. Buying: Which Is Better When It Comes to Insurance Costs?

Buying is a better choice if you’re concerned about the cost of insurance. That’s because you’ll have much more freedom over the type of insurance you choose. Lenders typically aren’t too particular about the insurance you have, as long as it meets the state’s minimum requirements. Dealers, on the other hand, can be very persnickety when it comes to coverage limits. They often want you to have more than is typical because they really want to protect their asset.

The same is true for determining your deductible, which is the amount you pay if you need to make a claim. Lessors can often dictate the deductible they require you to have, which could affect your monthly payment. But lenders typically don’t care what your deductible is. Higher deductibles result in lower monthly premiums, but lower deductibles make your premium go way up.

Either way, if you’re on the lookout for new insurance for your car, we recommend shopping around with a service like InsureOne. That way, you can compare quotes from top insurance companies to get the coverage you need at an affordable price.

Satisfy Your Insurance Requirements With InsureOne

Whatever kind of car insurance you need, InsureOne can help! When it comes to finding affordable auto insurance, we do the work for you. Get your free quote today.