Car insurance cost: lease vs. own

Thinking about leasing a car? It can be a budget-friendly option if you like switching vehicles often. But what about car insurance? The truth is that leasing companies usually have stricter car insurance requirements than lenders. That means your car insurance for a leased vehicle will likely cost more than for a car you buy outright or finance. Let’s break it down.

Leasing vs. buying a car

Leasing and buying a new car can both mean putting money down and making monthly payments, but lease payments are usually lower. That’s because a car lease is for a set period—typically around three years—after which you return the car to the dealer. When your lease term ends, you can return the car, renew the lease, or buy it outright.

Buying a car works differently. You can pay in full or take out a car loan. With financing, you’ll make a down payment and monthly payments (including interest) until the loan is paid off. Once it is, the car is yours to keep.

Does a leased car cost more to insure?

When it comes to auto insurance, leasing a car doesn’t mean you’ll be charged more just because it’s a lease. The difference lies in the insurance requirements.

Leasing companies usually have stricter rules because they technically own the car. When you lease a car, your insurance has to meet the requirements outlined in your lease contract. These stricter standards can lead to higher premiums when getting car insurance compared to what someone who owns their car outright might choose to pay.

However, if you're financing your car, your insurance may be around the same, as lenders tend to have similar rules about insurance requirements. On the bright side, monthly lease payments are usually lower than auto loan payments, making leasing a potentially cheaper option in the short term. Just keep in mind that, unlike financing, leasing doesn’t end with you owning the car.

Insurance coverage for a leased car

In Canada, having a certain amount of car insurance is a must if you own a vehicle. But when you lease a car, since the leasing company technically owns the car, they’ll require you to have specific additional coverage to protect it. Along with the mandatory third-party liability, accident benefits, and possibly uninsured motorist or direct compensation-property damage coverage (depending on your province), you'll likely be required to carry collision and comprehensive coverage and possibly gap insurance. When you choose to lease a car, here are the types of insurance coverage you’ll need to consider:

Collision coverage

Collision coverage takes care of damage to your car if you’re in an accident with another vehicle or hit something, like a tree or pole. Leasing companies as well as auto loan lenders usually require this optional coverage. However, leasing companies often take it a step further. They might insist on a low deductible, which can bump up your insurance premium.

On the other hand, if you own your vehicle outright, you can choose not to have collision coverage as part of your auto insurance policy. Or, if you'd like to have collision coverage, you can also choose to have a higher deductible to help lower your monthly payments. If you're financing, you can likely choose your deductible amount as well.

Comprehensive coverage

Comprehensive coverage handles damage from things like theft, weather, vandalism, fire, or even animals—basically, anything outside of a collision. Again, if you're leasing or financing your vehicle, you’ll likely need this optional coverage. But again, leasing companies may require a low deductible, making your monthly premium higher than if you financed.

On the other hand, once again, if you own your vehicle outright, you can choose not to have comprehensive coverage as part of your policy or to opt for a higher deductible.

Gap insurance

New cars lose value fast—sometimes as much as 20% as soon as you drive them off the lot—which is why some leasing and financing companies require you to carry gap insurance as well, though not all of them do. Even if it's not required, we strongly recommend you consider this coverage for your leased or financed vehicle. This coverage takes care of the difference between your car’s current value and what you still owe on the lease or car loan after insurance pays out.

Actual cash value coverage, the standard in Canadian car insurance, factors in depreciation if your car is totalled. This means your payout will likely be much less than what you paid for the car and may not cover the cost of a new one. Without gap insurance, you'd have to cover any remaining balance on your car lease yourself.

If you own your vehicle outright, paying extra for gap insurance wouldn't be necessary as you wouldn't owe money to a leasing company or auto lender.

Liability coverage

While we already mentioned that third-party liability coverage is required for car insurance, we feel we should mention that when you lease a car, you'll likely be required to carry a higher coverage limit. Depending on where you live in Canada, your minimum coverage requirements will vary. For example, in Quebec, it's $50,000, and in Nova Scotia, it's $500,000. However, your leasing company may require you to carry as much as $1 to $2 million, which can lead to higher monthly premiums.

Which option is more cost-effective: buying or leasing a car?

The total cost of leasing versus buying a car can vary depending on the length of the term and if you're paying cash or financing. Paying cash upfront is certainly the most cost-effective option, but since that’s not realistic for most people, financing is often the go-to choice.

In the short term, leasing often has the edge over financing—monthly lease payments can be over 30% lower than finance payments, assuming the same price, term, interest rate, and down payment.

For medium-term agreements, the gap starts to narrow, and the monthly payments can be fairly similar. In the long term, financing often works out to be cheaper since you eventually own the car outright. To decide what’s best for you, weigh all the financial factors, terms, and options to find the most affordable choice that fits your needs.

Should you lease or buy a car?

Deciding whether to lease or buy a car comes down to your personal preferences and financial situation. We’ll break down the differences between the two below:

Leasing

Leasing typically means lower monthly payments compared to financing, but unlike owning a car after paying off a loan, you’ll need to return the vehicle when the lease ends. Plus, since you don’t own the car, you’ll need to keep it in top shape or risk paying fees for things like scratches, dents, or stains at the end of the lease. Leases also come with a yearly kilometre limit, usually between 20,000 and 24,000 and if you go over, you’ll face additional charges.

Most leases last three years or less, making them a good choice if you like driving a new car or want to avoid dealing with the maintenance issues that come with older vehicles. New cars also typically come with bumper-to-bumper warranties that cover the entire lease period.

However, if you like adding personal touches like custom tires or extra features, leasing can be limiting. Leased cars must be returned in their original condition, meaning you’d have to remove any modifications.

Buying or financing

Owning a car, whether it's a new or used car, gives you way more freedom in how you use it and what you do with it. You can drive it as much as you want, make modifications, and treat it as an asset.

If you can pay in cash, that’s a big advantage because it strengthens your negotiating power. But most people choose to take out a loan. While you can get financing through the dealership, you can also explore options with your bank, a lending company, or even a personal line of credit.

When financing with a loan, the lender technically owns the car until you pay it off. The good news is you can negotiate the loan term, interest rate, and monthly payments with your finance expert.

Plus, after paying off your car loan—usually in four to five years—you own the car outright. You can keep driving it payment-free or trade it in as an asset toward your next vehicle.

Ways to lower your insurance premiums

No matter if you lease, finance, or buy a car outright, your insurance rates aren’t tied to how you pay for the car. Instead, they’re based on things like the car you choose and your personal details. That said, here are a few tips to help you lower your premiums:

Consider the vehicle

Cars that are more reliable or have advanced safety features often come with lower insurance costs because they’re cheaper to repair and less likely to be stolen. On the other hand, more expensive vehicles or antiques may have higher insurance costs because their parts cost more to repair or replace.

Keep a clean driving record

A history of safe driving can go a long way in lowering your insurance rates. Insurance companies often reward drivers with discounts for having a safe driving record. On the other hand, those with driving convictions or accidents on their record are likely to see higher premiums.

Bundle your insurance

You can combine your car insurance with other policies, like home or renters’ insurance, or with another vehicle, to unlock multi-policy discounts.

Raise your deductible

Choosing a higher deductible can help lower your premiums—but make sure you can comfortably cover the deductible if needed.

Consider using telematics programs

Many insurers offer programs that monitor your driving habits through an app or device. Safe driving can earn you discounts.

Drive less

If you commute fewer kilometres—by taking public transit, carpooling, or working from home—you might qualify for usage-based insurance, which rewards low-mileage drivers.

Work with an insurance broker

When shopping around for insurance, consider partnering with a local insurance broker. They can save you time and money by comparing car insurance quotes on your behalf to find you the best rates for your insurance needs.

Learn more about car insurance from BrokerLink

Both leased and financed cars typically need additional comprehensive and collision coverage. However, leased vehicles usually have stricter coverage requirements, which means you’ll likely pay more for insurance. Further, if you bought your vehicle outright, you have the option of not adding collision and comprehensive coverage (though we strongly recommend you consider it, depending on your vehicle!)

If you still have any questions about car insurance for leased or owned vehicles, don't hesitate to reach out to BrokerLink. You can reach us by phone, email, or in person at any one of our locations throughout Canada. No matter how you choose to get in touch, a BrokerLink insurance advisor will be happy to assist you. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.

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FAQs about car insurance costs: leasing vs. owning

Can you trade in a financed car?

Yes, it’s possible to trade in a financed vehicle, but you’ll likely want to pay off your loan before trading in a financed car for a new one. If your car is worth more than what you owe, the value can go toward paying off the loan and your new car. However, if it’s worth less, you’ll have negative equity. This means the difference between what you owe and your car’s value gets added to the cost of the new car. That extra amount gets rolled into your new loan, leading to higher monthly payments.

If you have any questions, contact one of our local branches.