Lease vs. Buy Car Insurance


The insurance requirements of leasing and auto loan providers are very similar. Until you fully own your vehicle, your lender or lease provider requires full-coverage insurance coverage to protect its purchase. If you pay cash for your car, you may insure your vehicle as you please as long as you maintain a liability policy, a requirement in most states.

Collision Insurance Coverage

Collision coverage offers the most protection for your car. If the vehicle is declared a loss by your insurance company because of an accident, damages or theft, your leasing company or auto loan provider receives the market value payout from your insurance company for your car even if you’re at-fault for damages. Whether financing or leasing, you must pay the remainder of the lender or leasing bank's loss if the insurance payout is not enough. Full coverage insurance does not guarantee your loan payoff.

Lease Exception

Whether your lease or finance, your lender or bank is listed as your insurance policy's loss-payee; you do not receive payment for your vehicle from your insurance provider. If the vehicle's market value payout exceeds your loan payoff, you'll receive the excess amount from your lender. If leasing, you won't receive any of your money back. For this reason, it is advisable to put as little down as possible when leasing a car. If the car is determined a loss, expect to lose your down payment amount and any monthly payments you made toward the lease contract.

Liability Insurance

If you pay cash for your vehicle, most states require at least liability insurance for registration. Liability coverage is the cheapest you can purchase, as it offers the minimum amount of coverage required by your state. A liability policy offers coverage for damage you cause to other people, known as bodily injury coverage, and damage to property, known as property damage coverage. Unless you can afford to replace your vehicle, it is advisable to add collision coverage to your policy to protect your vehicle purchase.


Your lending or leasing contract describes the penalties you'll incur if you don’t maintain required coverage. The penalty possibilities are very similar. Your lender or leasing bank may repossess your vehicle if you do not maintain coverage. Or, it may choose to add an expensive policy to your loan or lease amount until you provide proof of coverage again, which raises your monthly payment. If you fail to maintain state required coverage, your state may suspend your license or impose fines. Your insurance company reports your coverage limits, lapse, cancellation, reduction in coverage and renewals to your lien holder and state.

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