Now, if you’re trying to decide between leasing and buying a new car, it’s important to start with an understanding of what type of insurance coverage is needed. Some coverages are required by law, others by the lender if you’re financing.
Now for those that don’t know, the major difference between leasing and financing is who owns the vehicle legally at the end. When a vehicle is leased, you are not the owner of the vehicle, and so it has to be returned to the person who holds the title to it after the lease expires. In other words, with a lease, you are paying to borrow the car for the period. Later after that period, you have the option to buy the vehicle.
If you decide to finance the vehicle, you will own it after the amount (principal amount + interest) is paid off. Once the vehicle is paid off, the lienholder’s name is replaced with yours on the title.
Insuring A Leased Vehicle
Now even though you might not own the leased vehicle, you still need to prove that the vehicle is insured. A leased vehicle will require the following types of coverages by law:
Liability coverage: Most states require that drivers have at least the minimum amount of liability coverage. It helps to pay the other party if you’re responsible for an accident that injures them or damages their vehicle.
Uninsured and Underinsured coverage: It mainly depends on where you reside; some states will require this coverage on the policy. If you are hit by a driver who does not have vehicle insurance, the policy will cover you. It also kicks in if you’re hit by a driver whose insurance policy limits aren’t high enough to pay for your medical bill and damages. Also, some states require that drivers have personal injury protection.
Leases holders, on the other hand, will also require that you have a bit of coverage. More importantly, they will insist on you having collision coverage and comprehensive coverage. Both policies protect the vehicle from damage like an accident or act of vandalism.
Many insurance coverages may also be included in the lease, which will include gap coverage. The gap insurance also helps pay off the loan if you find yourself underwater financially and the vehicle is totaled.
Financed Car Insurance
When buying a vehicle, you are still legally required to have liability coverage. However, depending on where you live, you will need uninsured and underinsured motorist coverage in addition to coverage for personal injury. Additional vehicle insurance will depend on where you’re getting the vehicle financed.
How Vehicle Loans Can Affect Insurance?
When a loan is taken out on the vehicle, the lender will require collision and comprehensive coverage. The coverage can be adjusted, but only after the insurance policy has been paid off.
If you own a vehicle that’s only a few years old, you will want to purchase coverage for a new car. This new cover replacement coverage will aid in buying a new vehicle of a similar model and make if the one you have is totaled.
Give us a call today if you have questions about your car insurance!