There are lots of factors that go into deciding whether to lease or buy a car: How often you plan on using it, what kind of car you want to drive, how long you want to have it, and what you can afford.
But whatever decision you make may also affect how much car insurance coverage you’ll need for your new ride.
Let’s break down some of the biggest differences between buying and leasing a car, and how each option will affect your car insurance choices (and your wallet).
What’s the difference between buying and leasing?
When discussing the difference between buying and leasing a car, it all comes down to ownership. Who owns the car and, in the event of an accident, who will get a check from the insurance company?
Before we get into your car insurance needs, let’s take a look at the difference between buying and leasing.
Buying a car
Buying a car means you own it, which means you get all the benefits (and responsibilities) that come with ownership.
Some people can afford to buy a car outright, and pay for the whole thing at once, but for many drivers, buying a car means taking out an auto loan. Either way, there are a variety of benefits and drawbacks to buying a car outright.
Pros of buying a car | Cons of buying a car |
Cheaper long term option than leasing a car | You're responsible for maintenance costs |
You own your vehicle and can choose how to insure it | Cars depreciate in value over time |
You’re free to drive as much as you want, with no restrictions on mileage | If you finance your car, you'll pay interest cost every month until it is paid off |
→ Read more about how to get car insurance before buying a car
Leasing a car
Leasing a car is sort of like a long-term rental (lease terms are usually for 24 to 36 months — unless you end your lease early). Instead of buying a car, you pay monthly payments for the use of one. You get to drive it, but you don’t own it, which comes with a number of positives and negatives.
Pros of leasing a car | Cons of leasing a car |
You get to drive a new car every few years | More expensive than buying a new car |
You aren't impacted by the car's depreciation in value | You have limits on your annual mileage |
Monthly lease payments may be less than a car payment because you aren't charged interest | You may face penalties if the car is damaged when you return it |
→ Read more about what insurance you need on a leased car
Insurance options for bought vs. leased cars
Whether you’re driving a leased car or a car you financed with a loan, you still need car insurance. Most states require you to have liability insurance at a minimum (that’s the coverage that pays out if you damage someone else’s property or cause injuries with your car).
Even if you live in one of the states where auto insurance isn’t required, you need to be able to pay for the damage you cause with your car, so auto insurance is still important.
If you own your car outright, whether you paid for it up front or have paid off your car loan, all you technically need to do is meet your state’s minimum coverage requirements, and then you can choose whatever other protection you want. But if you lease a car, or if you still owe money on a loan for your car, you may have additional insurance requirements.
What car insurance is required for leased or financed cars?
If you lease your car or owe money on it through a loan, you’re likely required to include your lienholder or lessor on your auto insurance policy. And they may require you to get certain auto coverage that isn’t required by your state, such as:
Collision coverage: Pays for damage to your car caused by an accident, no matter who was at fault.
Comprehensive coverage: Pays for damage that happens to your car when you’re not driving it, like damage from extreme weather, flooding, vandalism, theft or fire.
Gap coverage: Covers the difference between your insurance payout and the balance on your loan so you don’t continue to owe money on a car that’s been totaled.
Whether you own your car or are leasing it from the dealership, the cost of full coverage insurance will be the same. There is no additional fee or cost associated with insuring a leased vehicle instead of a car you own.
However, your lease may require you to buy comprehensive and collision coverage with certain deductibles, or require you to have a minimum amount of liability coverage that’s higher than the minimum required by your state.
If you would otherwise make a different decision when it comes to the amount of car insurance you buy, these requirements may make car insurance for leased vehicles more expensive than car insurance for a car you bought.
→ Read more about cheap full coverage car insurance
Car insurance rates by company
Whether you buy or lease a car, the best way to save money on car insurance is to compare quotes from multiple companies. The chart below shows the average rate for some of the top insurance companies:
Insurance company | Average annual rate for full coverage | |
USAA | $1,128 | |
$1,179 | ||
Auto-Owners Insurance | $1,209 | |
$1,240 | ||
$1,569 | ||
$1,586 | ||
$1,814 | ||
$1,968 | ||
$1,991 | ||
$2,450 |
Frequently asked questions
Is leased car insurance more expensive?
The cost to insure a leased car is no different than the cost to insure a car you own, but the terms of your lease may include specific coverage requirements, such as buying comprehensive and collision coverage, that would be more expensive than other potential policies.
Is it smarter to buy a car or lease it?
It depends on your situation. Buying a car is usually a better financial decision, but if you only need a car for a couple years or you plan on making big lifestyle changes in the near future (like having a baby or moving across the country) it may not make sense for you to own a car just yet.
What are the disadvantages of leasing a car?
Leasing a car is more expensive over time than buying a car, and your lease will likely limit the number of miles you can drive in a year. It also means that you don’t own your car, so you don’t have the option of selling it if you need money.
How do I find out what car insurance coverage I have?
You can find the details of your car insurance coverage on your policy’s declaration page. If your insurance company has an app or a website, you may also be able to see policy details by logging into your account.
Methodology
Policygenius has analyzed car insurance rates provided by Quadrant Information Services for every ZIP code in all 50 states, plus Washington, D.C.
For full coverage policies, the following coverage limits were used:
Bodily injury liability: 50/100
Property damage liability: $50,000
Uninsured/underinsured motorist: 50/100
Comprehensive: $500 deductible
Collision: $500 deductible
In some cases, additional coverages were added where required by the state or insurer.
Rates for overall average rate, rates by ZIP code, and cheapest companies determined using averages for single drivers age 30, 35, and 45. Our sample vehicle was a 2017 Toyota Camry LE driven 10,000 miles per year for the first vehicle.
Some carriers may be represented by affiliates or subsidiaries. Rates provided are a sample of insurance costs. Your actual quotes may differ.
