Car Insurance Rates Compared for Leasing and Owning Your Car

Enjoying That “New Car Smell”
Making the decision to own or to lease your car involves considering several factors, not the least of which is expense. For those who feel it is important to have a new car in their garage every few years, leasing makes the most sense. For others who want to keep a car to get the most value from their choice, owning the car is a better bet. When you consider the depreciation that occurs during the first few years, unless you really must have that new car smell return regularly, it makes more sense to own the car beyond just a few years.

A Word About Gap Auto Insurance
Regardless of whether you lease or buy a new car, chances are that gap insurance is something you will probably need. A normal auto insurance policy only covers you for the value of the car, not the price of the loan. If your car is “totaled,” insurers are only contracted to compensate you for what is considered a fair price on the open market, which may be as little as 80% of the amount of the actual loan. If you are leasing the vehicle, it is a sure bet that the leasing company will insist on you obtaining gap auto insurance.

Consider the Operating Expenses When Leasing or Buying
One of the factors that you might want to consider when buying or leasing a new car is expense of operating the vehicle, including fuel economy, maintenance costs, length of warranty, and the cost of insurance. Whether you keep your car or return it for a new one every few years can make a difference in your auto insurance rate. A leased vehicle is usually more expensive to insure than a vehicle that is purchased. You can expect to pay $200 a year more for a policy covering a leased vehicle. After 5 years, the rate on your purchased vehicle continues to drop due to depreciation. This is not so on the leased car, whose insurance rate once again bounces back up to the rate for a new car.

Leasing a Car: Greater Car Insurance Risk
The incidental expenses associated with leasing compared to buying might sway someone who is leaning toward leasing. It may cost as much as $6000 to $7000 more to lease a vehicle over a 5 year period than to purchase the identical vehicle, $1000 of which would be the increased cost of auto insurance. Auto insurance may cost more for those who lease an automobile because these people are more likely to file a claim than their neighbor who buys a new car and keeps it “till the wheels fall off.” Auto insurers view the person who leases as a poorer risk and therefore should pay an increased share of the risk. Ultimately, the person who leases can enjoy that “new car smell” year-round while the person who buys and holds on to his car can enjoy the “smell of money.”