Not everyone can afford to pay for a vehicle upfront, and that’s okay! That’s where leasing comes into play. It allows you to pay off your vehicle on a weekly, biweekly or monthly basis. In turn, you can budget for your household needs. When you lease a vehicle, you can replace it every couple of years, which reduces your payments. If you take care of your vehicle, you can sell it for a decent amount of money down the road.
Understanding a car lease
First things first, what’s a car lease? How do car leases work in Canada? To put things simply, think of leasing a car like a long-term rental agreement. When you sign a lease contract, you are agreeing to pay a certain amount of money during the period that you are borrowing the car. It’s often used as a way for businesses to use vehicles for their required needs without an expensive payment or car loan. Let’s begin by reviewing some car leasing basics.
The difference between leasing and financing
Leasing and financing a vehicle are not the same thing. That’s why it’s essential to weigh the pros and cons of each. We’ve already explained what leased vehicles entail but haven’t discussed financing and why people may choose it. Should you be leasing or buying a car? It’s time to find out.
Financing a vehicle or getting a vehicle loan means you will own the vehicle after you pay it off. Although you will have to pay more each month when you take out a car loan, it can be worth it if you want to own a vehicle long-term. In contrast, leasing does not allow you to own the vehicle; at the end of the lease term, you must return the vehicle to the dealership.
Auto insurance for a leased vehicle
Like any other type of vehicle, a leased car has to be insured. There are some key differences to think about. Your insurance company can still help you insure your leased vehicle, but you will need to collaborate with the leasing company when selecting the policy. The main difference is you might have to opt into some regularly optional insurance policies. Continue reading to gain a better understanding of auto insurance for a leased car.
When it comes to car insurance, it doesn’t matter how you buy the vehicle. You should opt for comprehensive collision coverage for all vehicles. Whether you own or lease the vehicle has minimal effects on your insurance. However, it’s important to note that comprehensive and collision coverage are not mandatory when owning a vehicle, but they are when you lease a vehicle. That’s because the leasing company or lienholder owns the vehicle and has to protect it. You should keep this in mind when leasing a vehicle.
Getting into an accident when driving a leased car
If an insurance claim is made, causing the leased vehicle to be written off, the financing company will be compensated with the replacement costs. This does not mean the leasing company is the one responsible for paying the balance the insurance company doesn’t cover. Having additional types of insurance coverage can mitigate the risks of financial turmoil in the event that you get into an accident.
Let’s review an example. If the vehicle you’re leasing is worth $12,000 and it’s written off in an accident, the lienholder gets $10,000 from the claim; you have to pay the remaining balance of $2,000. This is assuming you don’t have additional coverage (such as gap insurance). Your insurance company can provide you with the best options to ensure you pay very little out of pocket.
With that in mind, you wonder who has to pay for car insurance for leased vehicles. After all, you don’t own the car, so it might give you the thought that you’re off the hook. However, this is far from the truth. In the next section, we will discuss who’s responsible for paying the insurance policy when you’re leasing a vehicle.
Types of insurance for a leased vehicle
Leased cars need insurance, too! You might be asking yourself, “Who pays for car insurance if I don’t own the vehicle?” The answer to this question isn’t as obvious as you might think. You make monthly payments on a leased vehicle as you would for a financed vehicle, and insurance is no different in this situation. You are the one responsible for paying car insurance for your lease. Here are the mandatory policies for leased vehicles and the optional ones we suggest getting:
Mandatory insurance policies for a leased car
When you are using a leased vehicle, the same laws apply when it comes to car insurance. Certain types of insurance coverage are mandatory, which means it’s illegal to drive without them. Leasing companies require you to have insurance coverage during the leasing term. Here are the types of mandatory insurance coverages for leased vehicles:
Third-party liability coverage
Having liability insurance is important. It will compensate you in the event of accidental injuries and property damage. This will cover medical expenses or lost wages that are a direct result of the accident. Outside of these, it will assist you in paying for legal defence and court fees. It’s mandatory throughout the entirety of your lease term, just like lease payment is.
Direct compensation - property damage
How does direct compensation property damage insurance coverage work? Basically, your insurance company will compensate you for the repair costs or what your vehicle is worth if you need to replace it. It’s important to keep in mind that this will only come into effect if you were not at fault for the accident. It’s illegal to drive without this when you lease vehicles.
Accident benefits coverage
Car leases also ask you to get accident benefits coverage from your insurance provider. When making monthly payments, you only need a basic version of this policy. In summary, it will help you or anyone else who’s involved in the accident. It can cover the costs of injuries, medical expenses, funeral expenses, and caregiving if necessary. You will need to keep up with it, along with your lease payments.
Uninsured automobile coverage
Uninsured automobile insurance is also a requirement fora leased car. It’s necessary because it will compensate you for damages in the event of a hit-and-run accident or if an uninsured or underinsured driver hits you. It’s important to insure a leased car because it will take care of medical expenses, property damage, and other costs. Financed and leased cars require it.
Optional insurance policies for leased cars
Although policies such as bodily injury liability coverage are mandatory, certain policies are optional. However, unlike traditional auto insurance coverage, car leasing might require you to opt into them because you don’t own the car when leasing, you are indirectly at the mercy of the company you’re borrowing from. They want to protect the vehicle you’re using because the intent is for you to replace it with a new one a couple of years down the line. We’ll discuss collision vs. comprehensive coverage and more in this section below:
Collision coverage
Sometimes, having collision coverage can be a condition of leasing a car — it might even be included in the lease agreement. You will use it if you get into an accident that requires extensive repairs or replacing your vehicle. Regardless, you will have to pay the deductible. The policy will remain in effect when leasing vehicles, so you don’t have to pay all of the costs out of pocket.
Comprehensive coverage
When leasing a car, you don’t own it. That’s whyyou should considerfull coverage insurance on top of your monthly lease payments. It will protect you against the potential costs of theft, fires, vandalism, severe weather conditions, natural disasters and wildfires. Not having this type of coverage isn’t illegal. However, it can sometimes be a mandatory requirement when leasing a vehicle.
Insuring leased vehicles isn’t much different from insuring financed vehicles. However, it’s important to know that liability coverage and its counterparts are legally required. Remember your lease contract to keep up with monthly payments and understand the leasing company's policies. These sometimes differ from provincial requirements, so be aware before leasing a new car.
Accident forgiveness coverage
It would be best to protect and maintain your leased vehicle as best as possible. After all, you’re paying the insurance for it on top of monthly payments. Accident forgiveness coverage is useful in the sense that it’s a way to prevent your insurance premiums from increasing. Having this accident forgiveness coverage insurance stops your rates from going up when you get into your first at-fault accident.
Contact BrokerLink today!
Whether you lease or purchase a vehicle doesn’t affect how much you pay for car insurance. In terms of leased vehicles, full comprehensive insurance and collision insurance is mandatory. Regardless, we recommend opting into these policies to protect yourself in the event of an accident.
Speak with a BrokerLink broker to find insurance coverage that meets your needs. Our team is well-connected with various insurance companies. We shop around for you to find the right car insurance policy at an affordable price.
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