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Leasing a car? Don’t forget auto insurance

Of all new cars purchased in 2011 in the United States, nearly 24 percent will be leased, according to an estimate from TrueCar.com. That would be the highest percentage of American car leases in at least 15 years.

Many more Americans are leasing cars as a way to save money, since monthly lease payments often are lower than monthly loan payments. However, drivers who lease cars sometimes overlook one important part of the equation: auto insurance.

Leasing may appear to be a cheaper route to getting behind the wheel of a new car, but auto insurance drives up the total monthly cost. In many cases, insurance for a leased car actually costs more than for a vehicle you buy outright.

“People who get auto insurance when they own cars are able to dictate how much coverage they want,” says John Sternal, a spokesman for LeaseTrader.com, which helps drivers transfer their car leases to someone else. “But when the car doesn’t belong to you, the rules change drastically. Banks require leasers to carry a certain amount of insurance.”

auto insurance leasing The amount of insurance coverage required for a leased car depends on a variety of factors, including your driving history and the type of vehicle. In general, car leases require liability coverage of $100,000 per person and $300,000 per accident for bodily injuries, and liability coverage of $50,000 for property damage. Most leases require you to carry auto insurance that exceeds your state’s minimum liability coverage.

For many people who lease cars, the cost of auto insurance is a deal breaker. At LeaseTrader.com, more than 4 percent of transactions come about because drivers neglected to research the new car’s effect on their auto insurance payments. LeaseTrader.com calls this phenomenon "first-time leasers’ remorse."

Among the cars that drivers with leasing remorse are ditching are the BMW 3 Series, Mercedes C Class, Infiniti G37 and Lexis IS, according to LeaseTrader.com.

To ensure that you can handle the lease payment in addition to the insurance premium, Sternal recommends investigating the insurance requirements and costs before signing on the dotted line.

"Once you find out what kind of coverage the bank will require, be sure to shop around to get the best rate," Sternal says.

In addition to traditional auto insurance, you may need to buy GAP insurance, which covers the gap between what you owe on the lease and what the vehicle is worth if it's totaled or stolen, says Leah Knapp, a spokeswoman for Progressive. However, leasing companies frequently include GAP or payoff insurance in their lease agreements, so be sure to review your leasing contract before you buy GAP insurance on your own, she says.

--Nancy Mann Jackson 

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