Leasing vs. financing a car can be tricky for many Ontario drivers. Both options have pros and cons due to personal preference and financial circumstances. However, one factor that many car buyers overlook is how the choice between leasing and financing can affect their car insurance. This article will explore how low leasing vs. financing a vehicle in Ontario can affect your insurance.
Leasing means renting a vehicle for a set period, usually 2-4 years. At the end of the lease, you return the car to the dealership or leasing company. On the other hand, financing a car means borrowing money to purchase the vehicle and will own it outright once you have paid off the loan.
Regarding car insurance, there are a few key differences between leasing and financing a car. Let’s take a look!
1. Additional Interest
When you lease or finance a car, the leasing or financing company – a third party – holds a financial interest in your vehicle. Therefore, you must list them as an Additional Interest on your insurance policy. Your insurance company must inform the leasing or financing company if they cancel your policy. Additionally, they may advise them if you lower limits or raise deductibles.
2. Required Coverages
Your leasing or financing company may have specific coverage requirements for your car as a condition of your agreement with them. However, whether you lease or finance, there are certain mandatory coverages that you will need in Ontario. These include:
- Accident Benefits coverage helps you recover from injuries sustained in an accident, regardless of who is at fault. It is mandatory in all provinces and territories except Newfoundland and Labrador.
- Liability coverage protects you and other drivers financially in case of an accident where you are at fault. Liability coverage is also mandatory for driving a car in Canada. The minimum limit required for liability coverage in Ontario is $200,000.
- Physical damage coverage is part of your policy that covers damage to your vehicle. It is often required by your leasing or financing agreement, as it protects the interest of the lessor or financing company.
In addition to these mandatory coverages, we recommend optional coverages, especially if you lease or finance a car. These include:
- Depreciation Waiver: This coverage is for new or nearly new vehicles. When added to your policy, your insurer will settle your claim without deducting depreciation from the value of your car.
- Family Protection: This coverage is crucial if an uninsured or underinsured driver hits you. It will cover you by your policy limits, no matter the minimum.
3. Claims Process
In case of a claim, leasing vs. financing your vehicle can change the handling of the claim. If you lease your vehicle, your insurer will discuss the settlement with the leasing company, which is considered the car’s owner, instead of you. If you finance your vehicle, you will receive payment unless the agreement with your lienholder specifies otherwise.
In conclusion, choosing between leasing and financing a car can impact your car insurance in Ontario. It’s essential to understand the differences between the two options and ensure you have the necessary coverages in place. Be sure to speak with your broker and leasing or financing company to ensure everything is in place.