CA Insurance Limitations on Leased, Financed & Owned Vehicles

A majority of people are not aware that the limitations on their car insurance vary depending on the ownership status of the vehicle. The state of California, much like other states, sets minimum limitations that every driver must have to legally drive a vehicle. Loan and lease companies can require these limitations to be raised to protect their interest in a financed or leased car. If you own the vehicle free and clear, you are only required to have basic liability coverage, although if it a relatively new car most people will maintain at least their collision coverage. Following is an explanation of the differences between the coverage:

Limitations based on leasing a vehicle

Although California sets the limitations on the minimum amount of coverage you must have, most lease companies require even higher limitations.  When leasing a vehicle, the vehicle is owned completely by the leasing company. They require higher limitations because they are protecting their investment. They want to be sure that if you or someone else damages or totals the vehicle, or in the event it is stolen, that you have coverage to pay for it. The typical lease limitations are as follows:

Liability coverage:                       $100,000 per person/$300,000 per occurrence

Property liability coverage:          $50,000

Comprehensive and Collision must be for actual value and you must have no more than a $500

Limitations based on financing a vehicle

The limitations when you are financing a vehicle are the same as the state minimum, which is as follows:

Liability coverage:                       $15,000 per person/$30,000 per occurrence

Property liability coverage:          $5,000

The difference, however, is that finance companies also require you maintain not only liability coverage, but comprehensive and collision coverage as well. As they are the lienholder on the vehicle until it is paid off, they, like leasing companies, want to protect their investment. This is required until the vehicle is paid in full, and then the extra coverage becomes optional. To protect yourself in the case the vehicle is totaled, there is a product called gap insurance. If your vehicle is totaled and you still owe a balance, the gap insurance would cover the difference between what the insurance company pays and what you actually owe on the loan.

Limitations based on an owned vehicle

If you own your vehicle free and clear, you are only required by the state to carry minimum coverage. These are the same limitations as a financed vehicle, but you are not required to maintain comprehensive and collision coverage.

Liability coverage:                       $15,000 per person/$30,000 per occurrence

Property liability coverage:          $5,000

However, even if your vehicle is paid off, you may not want to drop the extra coverage. You should consider only dropping the comprehensive and collision coverage is your vehicle is worth less than about 10 times the amount you pay for the coverage. For example, you own a vehicle that is worth $4,000 and your total yearly insurance premium is $1,000 of which $600 of that is the comprehensive and collision premium. Using the 10 times rule, $600 times 10 is $6,000. Since your vehicle is only worth $4,000, you might consider dropping your comprehensive and collision coverage. Keep in mind that if you do total your vehicle, it would be like having a $4,000 deductible if the vehicle is damaged or totaled. The decision to keep or drop collision and comprehensive is entirely your decision, so consider your financial situation before you drop them.

Now that you have an idea of how the limitations work, you can look at your policy and make sure that you have enough insurance, or have some coverage that you can drop and save money. If you have a lease vehicle and have lower limitations then mentioned earlier, you might want to contact your insurance company and have it corrected. If you do require higher limitations or additional coverage because you lease or finance a vehicle, make sure you talk to your insurance agent to make sure you are getting the best deal you can. You also want to be sure that you have at least liability coverage, as it is the law in California as wells as almost every state.