Leasing a car – The insurance angle
Contributors: Danny Newman, Ronen Goldman & Orit Touson
With a growing trend of people looking to lease cars as opposed to buying one new or used, many questions arise about how to insure the vehicle appropriately.
While there are many different types of lease agreements available, in most cases, when leasing a car, it usually remains in the leasing company’s name. In these situations, there is a requirement to tie the car insurance policy to the leasing company, who would receive the payout in the event of a claim. This is known as a lien or Shiabud. A lien is a form of security on a specific item or property that will compensate the lender (in this case the leasing company) should there be damage to the property insured by the policy.
The leasing company will require that the individual purchases a comprehensive car insurance policy (Bituach Makif) with a lien in place.
What happens if I have a minor accident?
First, you should check with the leasing company if they have any specific requirements or locations of where the car needs to be repaired. In the event that you have the freedom to decide, you have two options:
1. Using a participating mechanic of the insurance company (Mosach Hesder): Aside from having a lower deductible, the added benefit of working with a Mosach Hesder, is that in many cases the insurance company pays out directly to the mechanic. That means that aside from having to pay the deductible, there should be no other unexpected expenses.
2. Using a mechanic of your choice: In this case, the deductible is often higher than using a Mosach Hesder. When using a mechanic of your choice, the lessee is required to give a post-dated check to the mechanic, to allow time for the claim to be processed. Due to the lien, the insurance company will ask the lease company for approval to pay the lessee directly. Failing that, they will pay the leasing company who should then reimburse the lessee after they have proven they have paid for the repair in full.
What happens if the car’s value depreciates as a result of an accident?
In the event of depreciation caused to the car as result of an accident, the insurance company will pay the appraised depreciation to the leasing company. Many policies have a deductible meaning that the full depreciation will be paid minus the deductible. This can impact the final amount that you would owe the leasing company. There are policies available with no deductible to be paid for the depreciation clause, minimizing your risk.
What happens if the car is a total loss or stolen?
In the event of a total loss or a car being stolen, the insurance policy will pay out the leasing company according to the appraiser’s assessment of the value of the car at the time of the incident. Since certain factors can influence the final value of the car (e.g. mileage and the leased car status) the money received will be less than the book value for a privately owned equivalent. In many cases, the leasing companies will obligate the lessee to still pay out the amounts agreed in the original leasing contract. This can result in a situation where the lessee will have to fill the gap between the insurance payout and the outstanding amount owed according to the lease agreement.
In countries abroad, there is Gap Insurance to cover this risk – is this available in Israel?
Unfortunately at the moment, this insurance does not exist in Israel.
There is, however, an option which will cover 110% of the appraised book value should the car be totaled or stolen within the first 1-2 years (depending on the insurance company). This is known as the “New for Old” clause and is a feature that can be added on policies for privately owned new cars. This clause can also be extended for leased car policies, on that condition that the leased car is officially registered in your own name (i.e. private lease), instead of the leasing company’s name. The majority of leasing companies, however, prefer to keep the cars registered under their name rendering this option irrelevant.
While there are many advantages to leasing a car, it is important to be aware that the insurance policy covers the damages to the car. It does not cover your financing agreements – that includes, lease agreements, banks loans or other financing options! It is essential to review the terms of your contract carefully before agreeing to move forward.
For more information about car insurance contact us!