Insurance Coverage Requirements for Car Leases

Car leases come with a level of responsibility toward the permanent owner of the vehicle. When you own your car out right, you have the option of maintaining the car as you wish, and you may elect to carry low insurance coverage. With a lease, however, the owner will mandate certain conditions for maintenance and insurance, and failing to meet these requirements is breaking the contract. As such, it is necessary to meet the requirements set by a leasing agent to prevent repossession of the leased vehicle.

State Car Insurance Requirements

First, you must always meet the state requirements set for auto insurance in order to legally operate a vehicle. You can find the requirements your state has set by checking with the Department of Motor Vehicles. The state makes this requirement for the protection of all drivers. For example, if an uninsured driver were to strike an insured driver, the uninsured driver may not be able to cover the cost of repairs. As a result, the insured driver would have to pick up the expense. This can lead to higher insurance premiums and costlier repairs. Further, insurance spreads the burden of paying for car accidents. Instead of having one person cover the cost of repairs all at once, many people contribute a small amount each month into a fund. This fund is then used to make large payments when necessary. If one party is not participating in this system, the system fails to operate correctly.

Maintaining the Value of a Leased Car

This system is particularly important with a leased car. The car is similar to collateral on the lease. If you fail to pay your lease or your lease expires, the leasing agent will repossess the car. The agent expects the car to be worth a certain estimated value. If the car is not worth this value, the leasing agent will lose money on the lease. One possible risk the leasing agent must protect against is the chance you will have an accident and fail to repair the vehicle fully. This is typical for an individual who is uninsured or under-insured. If you fail to make regular repairs to any damages made, the car will lose its value rapidly, and the leasing agent will lose money ultimately.

Insuring Against Damages on a Leased Car

The leasing agent protects against this possibility by mandating you carry certain insurance minimums on your vehicle beyond the state required minimums. For example, you may be required to carry a high per occurrence limit policy. This means you will be covered for a high amount of damages each time you have an accident. It reduces the chance you will not repair all damages. This works because you have already paid monthly premiums for the high limit policy, so the insurance company will automatically cover all necessary repairs. You have no more to lose by repairing the car fully. It is common for the leasing agent to require a much costlier policy than you would otherwise opt for, which can actually drive up the cost of leasing a car.

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