Monday, September 9, 2013

Do you need to get car insurance quotes for a leased vehicle?

Do you need to get car insurance quotes for a leased vehicle? Let's start with the easy question. Should you lease rather than buy a new vehicle? One of the best known of all the men who've made millions, John Paul Getty, is on record with a very simple answer. If the asset is likely to appreciate in value, you should buy it. If it always depreciates, you should rent or lease it. The sad reality when you buy any new vehicle is it loses value the moment you sign the agreement to buy (some states make this worse by imposing a sales tax). Indeed, the fastest rate of depreciation is during the first year of ownership. Then the longer you own it, the more of its value it loses. Of course there comes a point when it can't lose any more and, assuming you've paid off the auto loan, it then costs you nothing but gas and the maintenance bills to continue driving. But up to that point, you've paid a big price for the privilege of driving. So before taking the decision, look carefully at the terms of renting or leasing to see which option offers the best deal. Given that some rental and leasing deals come as an all-in package covering all the costs except the gas, this can be a better deal than owning, particularly if you strike unlucky and have a major repair bill early on. But most companies refuse long-term rental, i.e. more than two months, preferring a lease. Now from a purely technical point of view, buying and renting/leasing are different. When you pay off the auto loan, you're the owner of the vehicle. At the end of the rental or leasing period, you have to return the vehicle. But if you ignore this legal nicety, the practical result is the same. You're paying a monthly amount to drive a vehicle on the road. The only real question is which payment offers better value for money. The typical lease runs for thirty-six months which, by coincidence, is about the average period covered by a manufacturer's warranty. This gives you peace of mind. Not only are you paying less than the average loan repayment for driving a new car, you don't have to worry about repair bills during the time you have possession of the vehicle. That leaves only one problem: insurance. Let's start with the big question first. Because of the rapid depreciation in the vehicles value during the thirty-six months, you will owe more on the leasing payments than the vehicle is worth. If you total the vehicle, there's an inevitable gap between the fair value amount payable on a total loss and the amount you'll owe on the leasing agreement. Check the small print of the insurance cover sold by the leasing company. If gap insurance is not included, buy your own. It only costs a small amount. Here's the situation in Texas explained: Now on to more general questions. There's been considerable consolidation in the leasing market and so, with less competition, it's more difficult to find terms and conditions that protect the consumer unless those terms also profit the leasing company. If you're entering into a thirty-six month lease, it's less likely you also own another vehicle with its own insurance policy. Let's say this is a family deal. You own one vehicle and you're going to add a second by leasing. If this is going to change the mileage of the vehicle you own, tell your insurer immediately. Low mileage entitles you to a discount. If the mileage will increase, this increases the risk of an accident and the leased car insurance quotes will rise. It will also change the risk if you propose to use the leased vehicle as the family's main vehicle. Unless you add this new vehicle to your existing policy, the insurer will refuse to pay on a claim. There's a world of difference between you using a rental for a few days or weeks in a year, and you driving another vehicle for thirty-six months. If you don't have an existing vehicle, you must either rely entirely on the cover sold by the leasing company or investigate your own cover. Now let's come to the problem of liability cover. You can almost always rely on the leasing company to take out adequate collision and comprehensive cover. They own the vehicle and will lose the value of their investment if the vehicle is damaged or lost. Subject to the question of gap cover, you can relax. But the same is definitely not the case for liability cover because this is your problem as the driver. All states require leasing companies to make the mandatory minimum cover available through the agreement. This will leave you exposed to pay any larger amounts out of your own pocket. If you hit a fence, repair costs are likely to be within the mandatory minimum. If you hit the top-of-the-range sports car driven by a CEO earning $1 million a year, you're potentially facing a big claim. The claim is unlikely to be filed in court if you have no assets to your name and no significant pay. Attorneys like to get paid and only sue when there's a reasonable amount of money to collect at the end of the case. So you're at risk if you own your own home (and it's not underwater), you have a 401k account or a salary that can be garnished. In such circumstances, you should always top up the liability cover to realistic levels. It'll be unduly pessimistic to buy umbrella cover, but you should certainly consider the risk of having to pay significant amounts in an at-fault state for medical expenses and the labor for repairing expensive makes and models.

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