Does leasing or financing cars impact insurance?
Leasing or financing a car
How leasing vs. financing a car affects your insurance

Buying a new car comes with a lot of choices to make, from the features you want to what warranty to go with. Once you’ve narrowed down the type of car you want, it’s also a good idea to get a car insurance quote so you have an idea of the cost. There are plenty of pros and cons to consider when it comes to leasing or financing your car. Regardless of which option you choose, here are four key ways it will (or won’t) impact your auto insurance – especially in the event of an auto insurance claim.

What is the difference between leasing and financing a car?

Before jumping into how leasing or financing your car could affect your auto policy, it’s important to know the difference between these two terms.

When you lease your car, you’re effectively renting it for a set amount of time. Since you don’t own the car, at the end of your lease, you’ll return the vehicle. However, you’re usually provided the option to buy the car if you want. When leasing, you’ll have a leasing company, also known as a lessor.

On the other hand, when you finance a car, you’re paying off a loan towards owning the car outright. This means that once the loan is paid, the car is 100% yours. If you choose to go this route, you’ll have a financing company or a lienholder.

So, which one is better? This will depend on your needs and what you prefer

TIP: Looking to buy a new set of wheels? Check out these important tips for buying a car.


Now let’s move on to the relationship between leasing or financing and your car insurance.

Does leasing or financing impact my car insurance?

If you are wondering if a leased or financed car cost more to insure, we have good news. Whether it's leased or financed won't impact how expensive your car is to insure. Instead, your rate is determined by a number of factors, such as the vehicle make and model, how long you’ve been a licensed driver, number of past auto insurance claims and traffic tickets.

TIP: Thinking of financing your vehicle? Be sure to secure the best car loan for your needs.

Who do I name on my auto insurance policy for a leased or financed car?

When you lease or finance your car, a third party – often the lienholder, lessor or financing company – has a stake in your vehicle (aka a financial interest). This means they need to be listed as an “Additional Interest” on your policy. You’ll also need to provide them with proof of insurance. 

Your insurer is required to advise any listed Additional Interests if you lower your limits or raise your deductibles. They’re also required to inform your leasing or financing company if your policy has been cancelled.

TIP: If you’re a Sonnet customer, you have direct access to proof of insurance for your leasing or financing company via your Sonnet account.


Your insurer is required to advise any listed Additional Interests if you lower your limits or raise your deductibles. They’re also required to inform your leasing or financing company if your policy has been cancelled.

Here’s what’s required for your auto insurance policy in both cases: 

For leased vehicles

Your auto insurance must list both you and the leasing company as named insureds. Usually, the leasing company's name and address will be specified in your lease agreement. Make sure your policy reflects their required coverages, like collision and comprehensive. Contact your insurer with this information to ensure your policy is correctly set up.

For financed vehicles

In the case of financed vehicles, the auto insurance policys will list both you and the lender financing the car, with the lender’s name and address appearing exactly as it does on your loan agreement. Not naming the lender (also known as a lienholder) can cause issues if you make an auto insurance claim, so contact your lender if you're unsure of the correct information.

Heads up! A leasing or financing company can’t buy a Sonnet policy on your behalf. To help protect you from insurance fraud and for legal reasons, you must be the one to consent to and purchase your policy.

Leased or financed car coverage types

If you lease or finance a car, your lender will likely require more coverage than the provincial minimum, as they’ll want to protect their investment if the car is damaged or stolen. Getting sufficient coverage protects both you and your lender. Although your lessor or financing company may have already specific coverage requirements for your car as a condition of your agreement with them, you should still have the following coverages:

Accident benefits coverage

If you’re injured in an accident (no matter who’s at fault), Accident Benefits is there to help you recover. This coverage is mandatory in all provinces and territories except Newfoundland and Labrador. In Quebec, drivers are covered by the SAAQ (Société d’assurance automobile du Québec) auto insurance plan, but have the option to buy additional Accident Benefits coverage through a private insurer.

Liability coverage

This protects you and other drivers financially in case of an accident where you’re at fault. Any damages, injuries or losses experienced by another driver or individual will be covered. This coverage is mandatory in order to drive a car in Canada. The minimum limit required for liability coverage varies by province:

  • Nova Scotia – $500,000 minimum liability limit.
  • B.C., Alberta, Saskatchewan, Manitoba, Ontario, Newfoundland and Labrador, New Brunswick, P.E.I. – $200,000 minimum liability limit.
  • Quebec - $50,000 minimum liability limit.

Physical damage coverage

This the part of your policy that covers damage to your vehicle. Depending on your policy, this could cover you for at-fault or not at-fault accidents, as well as for damage from falling objects, vandalism, fire, theft or other perils. Since this coverage has the most significant impact on protecting the interest of your lessor or financing company, it’s often required by your agreement.

Heads up! If you’re planning to remove physical damage coverage, lower your deductible(s), or switch your car insurance over to comprehensive only coverage for the winter, this may be against your leasing or financing agreement. Be sure to check with your lessor or lienholder before making any changes to your coverage.


There are a couple optional coverages that are also recommended, especially if you lease or finance:

  • Depreciation waiver. This coverage is designed for new (or nearly new) vehicles. When added to your auto policy, your insurer will settle your claim without deducting depreciation (aka wear and tear) from the value of your car. In the event of a total loss, your insurance provider would pay the lowest of the following amounts:
    • The actual purchase price of the car and its equipment.
    • The manufacturer’s suggested list price of the car and its equipment on the original purchase date.
    • The cost of replacing the car with a new vehicle of the same make and model that is similarly equipped.
    Keep in mind, this coverage only applies for a certain amount of time and eligibility depends on the age of your car and its purchase condition.
  • Family protection. Even if you own your car, you’ll want to have this on your policy. If you’re hit by an uninsured or underinsured driver, including when driving in another province or state, you’ll be covered by your own policy limits no matter what the minimum is.

Your leasing or financing company will also require either Lessee Protection (for leased vehicles) or Lienholder Protection (for financed vehicles) on your policy.

How do I file a claim for my leased or financed car?

In the event of a claim, leasing or financing your vehicle can change how the claim is handled.

Leased car claims

Contact your insurance company immediately after a car accident and provide your lease agreement details. Your insurer handles the claim like any other, but the lessor, as the vehicle's owner, will be involved in repair decisions. You're responsible for your deductible. If the car is totaled, the insurance payout goes to the lessor, and you may owe the difference between the payout and the remaining lease balance.

Financed car claims

After a car accident, contact your insurance company immediately. They'll guide you through the claims process, whether you're at fault or not. If your car is financed, the lender may be listed on the insurance policy as a loss payee. This means the insurance company will likely issue any settlement checks jointly to you and the lender.

Whether you lease or finance, if you’re in an accident where your car is a total loss, your settlement will be co-payable. If it’s leased, settlement will be sent to the lessor. If it’s a lien, it will go to you, unless the agreement with your lienholder specifies differently. If the car is worth more than you owe, then you’ll receive the remainder of the settlement. On the other hand, should you owe more than it’s worth, you’ll have to cover the rest of the costs owed.

How can I manage my leased or financed car insurance?

We’ve given you some key things to think about, but it’s also important that you review your agreement with your lessor or financing company. Double check that you’ve met all of the specific insurance requirements to make sure you’re fully covered. If you’ve got any questions about auto insurance claims or what coverage is required, reach out to us at Sonnet any time – whether leasing or financing, we’re here to help you get the best auto insurance for your needs.

Coverage your car’s always wanted at a competitive price.