Do You Have the Right Insurance Coverage for Your Leased Vehicle?

This article has been updated from a previous version.

For many people, the benefits of leasing a car far outweigh the drawbacks. Your vehicle payments are generally lower, you can get a new car once the lease is up, and the car may be under warranty for defects and repairs during the life of the lease.

There are drawbacks to leasing, however. The biggest: you will not own the vehicle at the end of the lease term, and you may have to pay extra fees for wear-and-tear — or if you go over the kilometre limit specified in your leasing agreement. You’ll likely be dinged for unrepaired parts as well. And, if after a year you hate the vehicle, breaking a lease early can be costly.

Chances are, you know all about the pros and cons of leasing already. But there is one important question to consider: do you have the right auto insurance coverage?

Auto insurance for your leased vehicle

Whether you purchase, finance, or lease a vehicle in Canada, you’re required to have auto insurance. You’ll need proof of coverage before you can take your vehicle home with you from the dealership. When it comes to leasing a car, however, there are some things you need to know when it comes to your auto insurance:

1. The leasing company will be listed on your policy

When you lease a vehicle, you’re renting it long-term, and you don’t technically own it. As a result, the leasing company has a vested interest in your car and will be listed on your auto insurance policy. This ultimately means that your insurance provider will have to let your leasing company know if you change your coverages, limits, or deductibles. If your policy is cancelled (by them or by you), your leasing company will need to be notified.

2. The leasing company will need a copy of your insurance policy

Your leasing company will likely want to see your insurance policy for each year of your lease. If you switch insurance companies because you found a better rate, or even if you simply renew an existing policy, you’re generally expected to provide them with proof that you’re still insured for the coverages required each year.

3. You may require specific coverages

Every province requires all drivers to have a minimum set of mandatory auto insurance coverages (the most common being accident benefits and third-party liability). However, your leasing company may insist on having higher limits than the minimum of what’s required where you live.

The leasing company will also likely require that your policy includes collision and comprehensive coverage. Normally, these coverages would be optional, but they become mandatory if you lease or finance a vehicle.

Collision coverage offers protection if your car is damaged in an auto collision, while comprehensive offers protection for non-collision-related claims, such as theft or vandalism. Both coverages have a deductible, and the leasing company may cap the maximum deductible you can set, often around $1,000.

4. You should consider a Limited Waiver of Depreciation

One of the benefits of leasing is you’re driving a new car, but what happens if that car is written off after you take possession of it? Perhaps it’s stolen, or you’re in an auto collision.

Without the optional Limited Waiver of Depreciation endorsement, your insurance company will pay out what they assess as the vehicle’s value when it is written-off, not what it was worth new. Depreciation will factor into this assessment.

However, the insurance provider’s assessed value may be less than the payments you still owe on the lease. With this waiver, which is typically available for the first 24 or 36 months of your lease, your claim payout (minus your deductible) would essentially be for the vehicle’s replacement cost.

Protect your car — and your car insurance premium

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