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

  • It’s estimated that about one-third of drivers in the country lease their vehicles.
  • The leasing company has a vested interest in your car and will be listed on your auto insurance policy.
  • Your leasing company will likely require specific auto insurance coverages and limits.

Auto insurance considerations when you lease a car.

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

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

Many Canadians already know about the pros and cons of leasing. It’s estimated that about one-third of drivers in the country lease their vehicles. With so many people choosing to go this route, it’s important to ask: Do you have the right auto insurance coverage?

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Auto insurance for your leased vehicle

Whether you purchase, finance, or lease your vehicle, you’re required to have auto insurance for it. You’ll need proof of coverage before you can take your vehicle home with you from the dealership. However, when it comes to leasing a vehicle, 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. You don’t really own it until the end of the lease, and only if you decide to buy it out. As a result, the leasing company has a vested interest in your car and will be listed on your auto insurance policy. That means if you change your coverage options, limits, or deductibles, your insurer will have to let your leasing company know. Likewise, if your policy is cancelled (by them or by you), your insurer will inform the leasing company of that too.

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

Each year, your leasing company will likely want to see your insurance policy. For example, suppose you switch insurers because you found a better rate or renew an existing policy. In that case, you’re expected to provide them with proof that you’re still insured for the coverages required.

3. Your leasing company will likely require specific coverages.

Every province requires all their 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 needed by your home province.

The leasing company will also likely require that your policy includes collision and comprehensive coverage. Normally, these coverages would be optional, but they are not if you lease or finance a vehicle.

Collision coverage offers protection if your car is damaged in an auto accident, while comprehensive offers protection for non-collision related claims (like theft or vandalism). Both coverages — collision and comprehensive — have a deductible. However, the leasing company may cap the maximum deductible you can set, often to the tune of $1,000.

4. Consider adding the Limited Waiver of Depreciation to your policy.

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 accident.

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

However, the insurer’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 be for the vehicle’s replacement cost without factoring in depreciation.

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