Leased Car Insurance Requirements Explained

Leased car insurance requirements vary from dealer to dealer and state to state. Still, lessees — people who lease cars — must always carry full coverage auto insurance.

If you have questions about leased car insurance requirements, you are in the right place. The professional insurance experts at Einsurance.com are ready to answer your most often asked questions. As always, we present this information to the public in an unbiased, straightforward way, to educate and entertain you.

Keep reading to learn about:

• How leases and leased car insurance work
• Gap insurance for leased vehicles
• How to find full coverage car insurance for lease vehicles
• Liability limits required on a leased car
• And comprehensive & collision insurance for leased cars

We’ll begin with a look at how auto leases and leased car insurance works.

How Leases and Leased Car Insurance Work

An auto lease like a long-term rental contract for a vehicle. Read your contract carefully before signing it, and make sure you understand mileage limits and leased car insurance requirements.

About Auto Lease Contracts

Most major US dealerships offer leases in the 24 to 36-month range. We have heard of private, independent dealers offering different, unique terms for local customers, too.

To set up a lease, a customer must usually provide a significant down payment — often a few thousand dollars — and then make monthly payments throughout the lease term.

Most auto leases require that a vehicle is properly maintained with oil changes and so on. If a major defect shows up, the vehicle might be under warranty for a free fix. If not, the dealership might arrange for repairs and share this cost with the lessee.

And as always, you will need to carry full coverage car insurance for a lease/

Mileage Requirements

A lease contract will almost always include mileage limit, ranging anywhere from 10,000 to 15,000 per year. Consumers considering a lease should think about their annual mileage before signing any documents. Sometimes, lessees can buy “extra miles” early in the relationship.

Know that if you drive more than the mileage allotted, you will pay much more when it is time to turn in the vehicle.

Typically, when the lease is over, the auto is returned to the dealership. Some dealerships will offer the lessee a chance to buy this vehicle at a reduced price. It really depends on the market for that specific auto, the condition of the vehicle, and lessee’s credit situation.

Why Must You Carry Full Coverage Insurance on a Leased Vehicle?

A lessee does not own the vehicle they drive. This vehicle still belongs to the dealer, and it needs to be protected from all sorts of damage or losses that could happen.

Lessees must buy full coverage auto insurance, which covers points like:

• Theft
• Fire
• Collisions
• Other types of damage, like that caused by fallen tree limbs, for instance

Hail may or may not be covered by your insurance policy. It depends on your state and the provider, so read your insurance documents carefully to understand exactly what is covered. (We’ll speak more on comprehensive and collision coverages for leased cars shortly.)

If your leased car does endure a loss, you will need to pay a deductible before insurance kicks in to cover the rest. Most lease contracts require a smallish deductible on your insurance contract, ranging from $500 to $1,000.

This leads nicely into our next segment on gap insurance for leased vehicles.

Gap Insurance for Leased Vehicles

We think Investopedia.com describes it best when they say, “Gap insurance is a type of auto insurance [you can buy] to protect yourself in case you total your car and the amount of compensation you receive does not fully cover the amount you owe on your financing or lease agreement.”

Put another way, if the amount owed on of your lease is greater than the vehicle’s book value, gap insurance can cover the difference if you wreck the vehicle.

If you are thinking about leasing a car, the dealership may or may not require you to carry gap insurance. However, we believe gap insurance is usually a good idea.

“Do I Really Need to Buy Gap Insurance for my Leased Vehicle?”

We strongly encourage consumers to buy gap insurance for leased vehicles.

Especially when:

• They lease a high-end, expensive vehicle
• They live or work in an area prone to auto thefts
• Their daily commute involves dangerous highways or poor road conditions
• Their lease contract involved little or no down payment

If one (or more) of those points describes your situation, you should probably buy gap insurance for a leased vehicle.

Understanding Depreciation on Leased Vehicles

All new vehicles depreciate very quickly. In other words, as time goes on and vehicles are used, their value becomes less.

In fact, the value of a brand-new vehicle drops anywhere from 10 to 20% the moment it leaves the dealer’s parking lot! The car becomes used vehicle, not a new one.

The average value of a brand-new car in 2025 is roughly $49,000, before added costs like DMV fees or document fees. It might depreciate to around $40,000 the moment you drive it home.

Time passes, and depreciation continues every day with every mile. Even if a vehicle is hardly driven at all, it still gets older.

And damages caused by accidents or attempted thefts can also decrease a vehicle’s value.

Now, to illustrate depreciation and the importance of gap insurance for a leased vehicle, let’s imagine a consumer who has some bad luck with their lease, through no fault of their own.

The Importance of Gap Insurance for Leased Vehicles: Betty’s Unlucky Story

Imagine a retiree named Betty. She is 66, lives in the countryside, and is recently widowed.

Betty chooses to lease a Jeep Wrangler — valued at $40,000 plus some fees — because she wants a new, rugged, reliable vehicle with warranty support. She lives alone, does not drive much, and looks forward to her outings in town for the scheduled maintenance needed in her lease contract.

Betty puts a down payment of $3,000 on the Wrangler and does not buy any gap coverage.

Depreciation Begins

Remember, the moment she drives her Wrangler off the dealer lot, the vehicle value depreciates to, say, $35,000. It is no longer “new.”

During the first few weeks of her lease, Betty gets rear-ended at a stop light. No one is injured, and the at-fault driver’s liability insurance covers repairs. But now that Jeep is worth a little less. We’ll guess $32,000.

A few weeks pass and the weather is bad. This time, someone slides through an icy intersection and strikes the passenger side of the Jeep, causing a great deal of damage. Again, Betty is unharmed. The at-fault driver’s insurance covers the repairs, but the value of the Jeep drops some more. We’ll imagine it is now worth $28,000.

Then, the final event happens, and the Jeep is stolen while she is grocery shopping in town. Weeks pass, and law enforcement is unable to recover the Wrangler.

How Much Will Betty’s Insurance Pay for the Leased Vehicle?

Betty’s insurance has records of every incident and repair made to the Jeep. They know it’s only valued at $28,000. Subtract her $500 deductible, and her insurer is only willing to pay $27,500 on the Jeep, even though it is only a few months old.

The problem is that Betty she still owes $35,000 on the lease contract. She is left with no vehicle and a debt of $8,500!

If Betty does not pay this debt, it will damage her credit score and make it difficult to buy or lease any new vehicle.

But, if she had purchased gap insurance for her leased vehicle, it would cover that difference. That is why most auto dealers and insurance agents will recommend gap insurance for a lease.

Now, let’s switch gears and explore how easy it is to find full coverage car insurance for leased vehicles.

How to Find Full Coverage Car Insurance for Lease Vehicles

Shopping for full coverage car insurance for lease vehicles is easy! We invite you to shop for car insurance quotes Einsurance.com.

You can also:

• Contact insurance companies with which you already do business, you might get a discount for bundling several lines of insurance with one provider
• Use your favorite search engine to search for “full coverage car insurance for leased cars”

In short, the internet has made it very easy to find full coverage car insurance for leased autos. Just remember that you do need to honor your contract when it comes to a need for full coverage, and they may have stipulations about your deductible amounts.

This leads nicely into our next, point, on limits of liability required for leased autos.

Limits of Liability Coverage Required on a Leased Car

The liability part of your auto insurance policy exists to pay for damages you could cause to others while driving the car.

Liability covers:

• Damage to other autos
• Damage to other types of physical property, like fences
• Medical costs to pedestrians or passengers in other vehicles
• Funeral or cremation costs if you cause a fatality while driving

Liability does NOT cover:

• Damage you cause to your leased vehicle
• Your personal medical bills in an accident you cause (health insurance will cover these)
• Random damage that your vehicle endures, like hail or falling tree limbs

The lessor (dealership) does not care how much liability coverage you purchase, but your state does.

Every state has a minimum liability insurance requirement for vehicles to be on the road, legally. That minimum amount is the same for every driver and every vehicle, leased or owned. Liability requirements change from time to time, but rest easy, your insurer and all licensed agents are aware of these numbers.

As licensed insurance agents, we often encourage consumers to consider buying a higher limit of liability than the state minimum requirement. New autos are expensive, medical bills get costly, and you may sleep better at night knowing you will not be on the hook to pay for someone else’s $49,000 vehicle if you make a mistake behind the wheel. Accidents happen!

Now that we’ve explored the liability limits needed on a leased car, let’s compare that to full coverage, comprehensive and collision insurance for a leased car.

Comprehensive & Collision Insurance for Leased Cars

Comprehensive and collision insurance exist to pay for damages to a vehicle. When you buy a “full coverage policy” it includes:

• Collision coverage
• Comprehensive coverage
• And the liability insurance we discussed above

Some policies, in some states, also provide coverage for uninsured or under-insured motorists.

The lessor (dealership) will always require that a lessee (driver) buys a full coverage policy to protect the leased vehicle. We have heard of situations where a driver didn’t understand this, and switched to a lower cost liability only policy, only to have their leased vehicle repossessed by the dealer.

What is Covered by Collision?

Collision coverage covers any damage caused when a vehicle strikes, or is struck, by something else. If you hit a deer, a fence, a house, a cow, or a car, collision will help pay for repairs (after you pay your deductible.)

What is Covered by Comprehensive?

Comprehensive coverage pays for all sorts of other issues that don’t involve striking / being struck by something.

We’re talking about:

• Theft
• Damage caused by attempted theft
• Falling trees
• Garage fires
• And similar, random situations

Ultimately, it’s easy to understand that lessors want their vehicles protected with a full coverage policy while in the care of a lessee. And if you need help finding affordable insurance for a leased vehicle, check out Einsurance.com.

We are proud to partner with insurers large and small, all around the nation. We can help you find quotes for leased auto insurance quickly, from the comfort of your home. Try it today!