Does car insurance cost more if you lease your vehicle?

This article has been updated from a previous version.

Car insurance companies consider different risk factors when setting premiums on a new policy, such as your age, driving history, geographic location, and the type of vehicle.

But one thing that doesn’t directly affect the insurance rate itself? How you pay for the vehicle itself. Whether you lease, finance or purchase your car outright has no bearing on your risk level as a driver.

That being said, the coverage you require may differ depending on your needs. Leasing companies often require more comprehensive coverage, which can influence the overall cost of your insurance. This requirement for additional coverage might be why you're asked about the lease status in certain online insurance calculators.

What are the leasing company’s requirements?

When leasing a vehicle, the company you lease from remains the titleholder to the vehicle.

They will want to make sure the vehicle is completely protected and may require you to keep a certain level of coverage. As mentioned earlier, the insurance quotes won’t differ based on whether you are buying or leasing but may vary based on how comprehensive your policy is.

Comprehensive and collision coverage

Typically, a car dealer will require you to obtain substantial liability coverage and additional policy endorsements when leasing a vehicle. You can’t be stingy with comprehensive and collision coverage when it comes to this financial liability.

Comprehensive coverage protects against non-collision-related incidents such as theft, vandalism, or natural disasters. On the other hand, collision coverage will protect your leased car from damages resulting from a collision, regardless of who is at fault, ensuring repair costs are covered after an accident.

In addition, here are some other insurance considerations to keep in mind for your leased car:

All perils coverage

In some cases, you may be able to substitute collision and comprehensive coverage for ‘all perils coverage’. This is a more extensive form of coverage that combines both comprehensive and collision coverage. It not only covers the non-collision events included in comprehensive coverage, but also includes collision coverage, which protects against damage from accidents involving other vehicles or objects.

Additionally, all perils coverage can cover certain risks not typically included in standard comprehensive or collision policies, such as damage caused by someone who lives in your household or an employee who drives your car.

Deductible limits

Leasing agreements often specify a maximum deductible amount. This means you might need to select a deductible that is lower than you might typically choose to ensure compliance with leasing terms. But by lowering your deductible, you’ll likely have to pay more on your premium than if you had chosen a higher deductible.
Read more: How to choose your auto insurance deductibles

Loss payee endorsements

As the leasing company technically owns the vehicle, they must be listed as the ‘loss payee’ on your insurance policy. This ensures they receive any settlement funds in the event of a total loss.

In Canada, specific endorsements facilitate this process. For example, OPCF 5 is used in Ontario, while Q.E.F. No. 5a applies in Quebec. These endorsements protect the leasing company's financial interests.

Do you need gap insurance coverage for a leased or financed car?

Gap insurance covers the difference between the car's actual cash value (as determined by your insurer) and the remaining balance on your lease in the event of a total loss.

Given the rapid depreciation of new vehicles, gap insurance is highly recommended for leased cars to protect you from potential financial shortfalls.

For leased vehicles

The value of your car begins to depreciate the minute you drive off the lot, but the amount you owe to the leasing company remains the same.

Insurance companies will only cover the current market value of the car in the event of a total loss, leaving you to pay off the remaining lease balance to bridge the gap. This means that there could be a substantial difference between the amount of money an insurer is required to give you for a vehicle that has been written off, and what is still owed to the dealership.

When leasing a new vehicle, an insurance product to consider is gap coverage. This coverage alleviates the amount of money between the current value of the car and the balance owed on the lease agreement after insurance has been paid. It literally covers the gap.

Each province in Canada may have unique insurance requirements and regulations, so it's important to be familiar with your province's specific mandates. For instance, Quebec has distinct public insurance coverage that integrates with private policies.

Whether it is required or not, gap insurance is highly recommended when leasing a new vehicle. While it can add to your overall insurance costs, it can save you from a financial nightmare.

Related: How a car accident affects your insurance premium

For financed vehicles

When financing a new vehicle, the lender — instead of the leasing company — may require or advise you to carry gap insurance.

In cases of total loss, you could owe your lender a considerable amount of money. However, if you are close to finishing paying off your vehicle or have paid it off completely, gap insurance might not prove to be necessary.

Instead, consider a waiver of depreciation, which allows the insurer to pay the original value of the car and remains in effect for a set amount of time, usually between one to two years. The insurance company will ignore depreciation and pay the insurer the original value of the vehicle in the event of a loss.

The cost of this waiver can vary depending on the insurer and the specifics of your policy.

Related: Will my car insurance cover damage discovered after filing a claim?

Reducing insurance rates

Whether you decide to lease, finance, or purchase outright, your insurance rates are unaffected by ownership type. However, several strategies can help reduce your premiums:

• Reduce your commute: Take public transit or carpool to reduce the kilometres in your commute. If you drive less than the average distance annually, inquire about usage-based insurance. This might be worthwhile if you work from home.
• Maintain a clean driving record: Keeping a good driving record can help lower your premiums.
• Choice of vehicle: Some vehicles are cheaper to insure because of reliability factors, likelihood of theft or cost to repair like the Hyundai Elantra, Toyota Corolla and Honda Civic.
• Bundle your policies: Consider bundling your car insurance with other policies, such as home or renters’ insurance, to qualify for multi-policy discounts offered by many insurers.
• Increase your deductibles: Opting for higher deductibles on your comprehensive and collision coverage can lower your premium. Just ensure that you have sufficient funds to cover the deductible in case of a claim.
• Maintain a good credit score: In some Canadian provinces, insurers may use your credit score as a factor in determining premiums. Maintaining a strong credit history can help keep your insurance costs in check.
• Utilize telematics programs: Many insurance companies offer telematics or usage-based programs that track your driving habits via a smartphone app or a device in your car. Safe driving can result in discounts and lower premiums.

By implementing these strategies, you can work towards reducing your car insurance costs, making your financial journey smoother and more manageable.

Read more: 15 ways to get cheaper car insurance