What is Leased Car Insurance and What are its Types?

Owning a car is a dream in everyone's life, but one may not have enough financial constraints to afford the price of a new car. In this case, you can own a vehicle by leasing it. This can save you money and make your dream of owning a car come true.

However, the leased car should be insured with a car insurance policy to avoid extra expenditures and ensure complete protection. This article will explore car insurance for leased cars and factors to consider when insuring a leased car.

Lease car insurance is meant for leased vehicles rather than privately owned vehicles. In India, motor insurance with at least third-party liability cover is legally mandatory for private and commercial-use vehicles. 

However, leased cars must be insured with comprehensive car insurance policy for collision, theft, or other incidents to minimise financial losses. Gap insurance is critical for a leased car because the standard policy would not be sufficient for a total loss.

In India, car leasing is made through a contract. The lessee pays the leasing company to use a vehicle for a particular period, ranging from 2 to 5 years. At the end of the lease term, the lessee may return the car or buy it at a predetermined amount, known as the "residual value."

The Indian leasing companies require the drivers to have fully comprehensive vehicle insurance. This is an added security if the leased car is involved in an accident, theft, or damage, where lease car insurance helps. Thus, it ensures the financial protection of the lessee and the leasing company.

The financial risk associated with the leased cars is much higher than the privately owned ones. Thus, the leasing companies ensure the lessee has special insurance to overcome these risks. Here is why a lease car requires special insurance:

Leasing Company Requirements

Leasing companies often ensure specific insurance requirements when leasing a car to protect their investment. The following are a few requirements of financial institutions:

• Leasing companies usually require more extensive coverage for the leased car than basic car insurance.
• Gap insurance is mandatory to cover the difference between the car's value and the total financial loss that occurred.
• Higher liability limits are typically required to protect the leasing company's financial interests in case of losses.

To Protect The Car's Residual Value

Leasing companies are primarily concerned with the car's residual value or its worth at the end of the lease term. This is ensured in the ways given below: 

• A comprehensive insurance policy and car collision coverage help protect them from financial loss. Thereby reducing the impact on the residual value.
• It enhances and ensures the vehicle can be repaired or replaced without significant financial loss, thus protecting the car's residual value.
• A zero-depreciation policy prevents the car's depreciation, thus helping to avoid reducing its resale or buyout value. This keeps the car's residual value intact.

Covering Additional Liabilities

Leased cars may require coverage for additional liabilities not typically needed for owned vehicles. Here are a few additional liabilities given below:

• Accidental coverage for damage to the leased vehicle that is not caused by an accident helps the lessee and leasing company avoid losses.
• Protection against excess wear and tear, which could lead to penalties. Therefore, it ensures that the lessee is not subject to inevitable losses.
• Coverage for potential legal fees and fines arising from using the vehicle enhances the well-being of both the lessee and the leasing company.

Although the fully comprehensive insurance policy ensures complete coverage of the risks associated, the leased cars need added protection apart from the existing coverage. These coverages are as given below:

Collision Damage Waiver (CDW)

The collision damage waiver (CDW) helps cover minor bodywork costs and damages. These damages commonly occur while driving in high-traffic environments. Thereby, CDW protects you if you are involved in minor accidents or collisions.

Theft Protection

Theft protection ensures that you are not financially liable to the leasing company in case of theft.  This coverage also includes damages to the car during an attempt of theft. It's vital to have this protection, especially in case of high crime rates.

Third-Party Liability

Most often, leased vehicles, by default, come with third-party liability insurance that covers the losses you incur to the third party. It also includes bodily harm or damage to another person's vehicle, not you or your vehicle.

Super Collision Damage Waiver (SCDW)

A Super Collision Damage Waiver (SCDW) offers extended coverage beyond the vehicle's bodywork. While a standard CDW covers minor bodywork, SCDW extends this coverage to more significant damages, such as structural or mechanical parts.

Uninsured Motorist Protection (UMP)

This covers all medical expenses and other costs if the driver or passengers of other vehicles involved in the accident don't have insurance. In a severe accident, this coverage helps with your medical expenses and the damages to your car.

Supplemental Liability Insurance (SLI)

This insurance provides additional coverage beyond the default third-party liability insurance and a fully comprehensive insurance policy. It is especially useful when the leasing company's third-party insurance coverage limit is insufficient.

Roadside Assistance Cover (RSA)

This assistance cover is essential when your leased car gets stalled or breaks down. RSA provides towing assistance, tyre changes, battery jump starts, and fuel delivery services. For instance, if you run out of fuel, you can deliver five litres of petrol through RSA.

Choosing the right car insurance for your leased car is very important to save money and time. Here are a few tips by following which you may select the best insurance policy for you:

Understanding Lease Agreements

The lease agreement for the leased car should be reviewed before going for an insurance policy. Many leasing companies may have specifications to be fulfilled, including coverage limits, gap insurance, and types of coverage and deductibles.

Comparing Coverage Limits and Deductibles

One should check the coverage limits and deductibles provided by different companies to ensure that the chosen policy will meet the requirements set by leasing companies. Always take into consideration the deductible.

Checking for Mandatory Gap Insurance

Some leasing companies include a gap insurance requirement as part of your lease. In this case, find out whether such a policy would offer gap insurance coverage. This may save you from a bigger financial loss in case of total ruin or theft of your car.

Evaluating Customer Reviews of Providers

Customer reviews provide insights into what kind of insurance one can expect. Look for customer reviews that discuss the claims process, customer service, and how the provider handles leased vehicle policies. This helps you select the ideal policy that would work for you.

Although the insurance for a leased car is much more than that for an owned car, you can avoid higher premium payments if you follow the given tips: 

Bundling Policies For Discounts

Combine your car insurance and other policies, such as home or life insurance, for considerable savings. Most insurers offer discounts for bundling more than one type of policy.

Maintaining a Clean Driving Record

Maintain a clean driving record, as it may affect your insurance premium. Avoiding accidents and traffic violations will help you secure lower premium rates. This helps when you lease a car.

Opting For Higher Deductibles

Increasing the deductible (the amount you pay before your insurance is sanctioned) can lower your monthly premium. Make sure that the higher deductible is manageable in case of an accident.

Checking For Exclusive Discounts On Leased Vehicles

Certain insurance companies offer special discounts for leased cars. Therefore, when getting quotations, be careful so that you can save them here.

Common mistakes should be avoided when insuring a leased car to minimise losses and save time. Knowing them makes you avoid such errors. Here's a breakdown of the typical mistakes:

Not Meeting Lease Insurance Requirements

Leasing companies often have specific coverage, such as comprehensive and collision insurance, to enhance protection. Failure to meet these requirements may lead to penalties or extra fees.

Under-Insuring The Car

To reduce costs, minimal coverage is offered. However, this leaves you with financial risks, so ensure your coverage is well-equipped to lease a car.

Ignoring Gap Insurance

Gap insurance is essential for leased cars because it covers the difference between the car's actual cash value and its remaining lease balance. Thus, it helps when your car is stolen or damaged beyond repair.

Not Shopping Around For Quotes

Car owners should take the time to compare quotes from insurance providers. This is a practical way of obtaining the right coverage insurance at the best rate, even for a leased vehicle.

Overlooking Deductibles

The best temptation might be to choose a higher deductible. This helps lower the premiums you will be charged during the accident. Ensure your deductible is manageable so you can afford it.

Failure To Update The Insurance Policy

If you have bought an accessory for your leased car and made some alterations, ensure your insurance is changed accordingly. Get to inform your provider not to lose coverage for your add-ons.

In conclusion, securing the best insurance for your leased vehicle protects you from almost all risks. Explore an insurance policy with comprehensive coverage options and compare multiple insurance providers. 

Ensure you include both liability and gap insurance to protect yourself financially. Always check for discounts and maintain a good credit score to lower the premiums. Regularly review your policy to ensure it aligns with your current needs.