Who Pays Car Insurance on a Leased Vehicle

The leasing company requires you to carry the insurance, but you pay the premium

When you lease a car, you are responsible for buying and paying the insurance. The leasing company does not buy it for you. However, the leasing contract requires that you maintain coverage at a level the leasing company specifies — usually higher than the state minimum — and you must name the leasing company as an additional insured on your policy.

This is different from buying a car with a loan. When you finance a purchase, the lender requires insurance but you still buy it yourself. With a lease, the requirement is written into your contract, and if you let the coverage lapse, the leasing company can buy insurance on your behalf and charge you for it — often at a much higher rate than you would pay on your own.

The leasing company's role is to protect its asset (the car) and may support you cannot drive it uninsured. Your role is to find a policy, pay the premium, and maintain continuous coverage for the full lease term.

Key Takeaways

• You must buy your own insurance for a leased car; the leasing company will not provide it.
• Your lease contract specifies the minimum coverage limits you must carry, which are usually higher than your state's legal minimum.
• You must name the leasing company as an additional insured on your policy so they receive notice if coverage changes or lapses.
• If your insurance lapses, the leasing company can purchase coverage for you and bill you for the full cost, often at premium rates.
• Gap insurance is often included in a lease or strongly recommended, because it covers the difference between what you owe and the car's value if it is totaled.

What coverage limits your lease requires

Your lease agreement will state the minimum liability coverage you must carry. This is almost always higher than your state's minimum. For example, if your state requires 25/50/25 (meaning $25,000 bodily injury per person, $50,000 per accident, and $25,000 property damage), your lease might require 100/300/100 or even higher.

The leasing company sets this requirement because it is liable if you cause an accident and your insurance does not cover the full damage. By requiring higher limits, the leasing company protects itself from having to pay out of pocket. You will also need comprehensive and collision coverage, which cover damage to the leased car itself from weather, theft, accidents, or other causes.

Before you shop for insurance, pull out your lease agreement and write down the exact coverage limits and deductibles required. Bring this list to your insurance agent or use it when getting quotes online. If you buy a policy that does not meet these requirements, you are in breach of your lease, and the leasing company can enforce it.

Why the leasing company must be named on your policy

When you buy insurance for a leased car, you will see a field asking for the lienholder or additional insured. This is where you enter the leasing company's name and address. The insurance company then sends the leasing company a copy of your policy and notifies them if you cancel, fail to pay, or let coverage lapse.

This protects the leasing company because they know when ready if your insurance disappears. Without this notice, you could cancel your policy and drive the car uninsured for weeks before the leasing company found out. By requiring notification, the leasing company can step in and buy coverage before that happens — though you will pay for it.

When you call an insurance company for a quote, tell them the car is leased and provide the leasing company's name. The agent will add them to the policy automatically. This does not cost you anything extra; it is a standard part of insuring a leased vehicle.

What happens if your insurance lapses

If you miss a payment and your insurance cancels, or if you intentionally drop coverage, the leasing company will find out within days. Most insurance companies notify lienholders electronically when a policy ends. The leasing company will then contact you to demand that you restore coverage when ready.

If you do not restore coverage within a short window — often 10 to 30 days, depending on the lease — the leasing company will buy insurance on your behalf. This is called force-placed insurance or dealer-placed insurance. The leasing company chooses the policy, which is usually expensive and covers only the minimum required by law. You will receive a bill for the full premium, often hundreds of dollars per month, and this charge will appear on your lease payment or as a separate invoice.

Force-placed insurance is much more costly than insurance you would buy yourself because the leasing company is buying it in bulk for many vehicles and is not shopping for the best rate. Avoiding this situation is straightforward: set up automatic payments for your insurance premium so you never miss a due date.

Gap insurance and why it matters on a lease

Gap insurance covers the difference between what you owe on a lease and what the car is worth if it is totaled. Here is why this matters: a new car loses value the moment you drive it off the lot. If you total the car after six months, the insurance company will pay you what the car is worth at that moment — which is less than what you still owe on the lease. Gap insurance pays the difference so you are not stuck with a bill.

Many leasing companies include gap insurance in the lease at no extra cost, or they offer it for a small fee. Some require you to buy it from them; others allow you to buy it from your insurance company. Check your lease paperwork to see whether gap insurance is already included. If it is not, ask the leasing company whether you can add it, or ask your insurance agent about purchasing it separately.

Gap insurance is especially important early in a lease, when the gap between the car's value and what you owe is largest. As the lease progresses and you pay down the amount owed, the gap shrinks, but it is still worth having for the full lease term.

How to shop for insurance on a leased car

Start by gathering the information your lease requires: the coverage limits, the deductible amounts, and the leasing company's name and address. Then contact insurance companies or use online quote tools. Tell them the car is leased and provide the lease requirements.

Compare quotes from at least three insurers. The price can vary significantly based on your driving record, age, location, and the specific car. When you receive quotes, make sure each one meets your lease requirements — do not assume the agent has set the limits correctly. Verify the liability limits, comprehensive and collision coverage, and deductibles before you buy.

Once you choose a policy, the insurance company will add the leasing company as an additional insured and send them a copy of the policy. You do not need to do this yourself. Keep a copy of your policy in the car and make sure you know your policy number and the insurance company's phone number in case you need to file a claim.

What you do not pay for as a lessee

As a lessee, you do not pay for the car's maintenance warranty, which is usually included in the lease. You also do not pay for roadside information or towing coverage if the leasing company includes it — though you should verify this in your lease. Some leasing companies offer these services at no extra cost; others charge a monthly fee.

You are responsible for routine maintenance like oil changes, tire rotations, and filter replacements, but the warranty covers major repairs. If something breaks, you take the car to a dealer and the warranty pays for the repair. You do not buy separate coverage for this.

The one thing you absolutely must buy and pay for is the insurance policy itself. This is your responsibility from the first day of the lease to the last.

Frequently Asked Questions

Can I use my parents' insurance if I lease a car?

No. Your lease contract requires that you be the policyholder and that the leasing company be named on the policy. If your parents' insurance covers the car, the leasing company will not receive notice of the coverage, and you will be in breach of your lease. You must buy your own policy in your name.

What if I total the leased car and do not have gap insurance?

Your regular insurance will pay the car's current market value. If that amount is less than what you owe on the lease, you will owe the leasing company the difference out of pocket. This can be thousands of dollars. This is why gap insurance is important, especially in the first half of a lease.

Does the leasing company's insurance cover me if I let mine lapse?

No. Force-placed insurance covers only the car, not you as a driver. If you cause an accident while uninsured, you could be personally liable for damages beyond what force-placed insurance covers. You are also breaking your lease, which can result in early termination and additional fees.

Can I lower my insurance costs by raising my deductible?

You can raise your deductible only if your lease allows it. Check your lease agreement for the maximum deductible permitted. Many leases require a deductible of $500 or less. If your lease allows a higher deductible, raising it will lower your premium, but you will pay more out of pocket if you have a claim.

What happens to my insurance when the lease ends?

When you return the car at the end of the lease, you can cancel the insurance policy. If you are leasing another car or buying one, you will need to buy a new policy or modify your existing one. Contact your insurance company at least two weeks before your lease ends so you have time to make changes before the car is returned.