Buying or Leasing a Vehicle and Insurance

June 28, 2022
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Like many Canadians, you may be looking to hit the open road in a new vehicle. If so, you may be weighing the pros and cons of buying vs. leasing a new vehicle.

Fortunately, leasing or buying truly comes down to your individual priorities. 

Curious if leasing or buying a vehicle is right for you and how this may impact your insurance policy? The article below will identify the differences between leasing, financing, and owning a vehicle, and instances where it may be more beneficial to lease or buy. Additionally, we sat down with one of Gifford Carr’s personal lines experts, Jessica Elliott, who provided her insight on insurance implications.

Before diving in, it is beneficial to highlight the differences between leasing, financing, and outright owning a vehicle. As you read this article, you may refer to the definitions below: 

Leasing: In its simplest form, when you lease a vehicle you do not own it. You pay to use it for a fixed period of time. At the end of your lease term, you can either return the vehicle or purchase it to own.

Financing: In its simplest form, when you finance a vehicle you own it. This means you can use the vehicle how and for however long you want and elect to make customizations and modifications. 

Owning: Simply that, you outright own the vehicle. Aside from any maintenance, repairs, or modifications, you are not bound to any payment agreements or owe money for the vehicle.

Are leased vehicles more expensive to insure than financed or owned vehicles?

Leased vehicles are not more expensive to insure than financed or owned vehicles. This is because insurance premiums are determined by a person’s driving record, location, and vehicle type (e.g. a Ferrari will be more expensive to insure than a Volkswagen.)

I currently own a vehicle but am looking to lease one. How does this affect my insurance?

Good news! Your insurance remains primarily unaffected when you transfer from owning a vehicle to leasing a new one. 

I am looking to lease a vehicle. How does this affect my insurance?

The only additional requirement in Ontario when leasing a vehicle is OPCF 5 Permission to Rent or Lease Automobiles and Extending Coverage to the Specified Lessee(s).

OPCF 5 permits the lessor (likely a car dealership) to rent or lease the vehicle to the lessee (the individual leasing the vehicle) who has completed the Ontario Application for Automobile Insurance. It provides the lessee with others who may operate the vehicle with coverage in the event of damage or loss.

Similar to leasing a vehicle, your insurance policy remains relatively unaffected when you finance a vehicle. The only requirement is OPCF No. 23A – Lienholder Protection, which is required on financed vehicles.

When you finance a vehicle, you are loaning the vehicle from a lender until you pay it off. In this case, a lienholder is listed on the title and your insurance policy until the loan is paid in full. This is because the lienholder legally has an interest in your property because they provided you with the means to purchase the vehicle. Lienholder Protection protects the lender’s interest in your vehicle in the event of damage or loss.

Additional insurance coverage for leased or financed vehicles

When leasing or financing a vehicle, it is recommended to add OPCF 43 Waiver of Depreciation when a brand new or eligible vehicle is involved. 

What Is OPCF 43?

OPCF 43 is an enhancement that can be added to your Ontario car insurance. It removes your insurance company’s right to deduct depreciation from the value of your vehicle for a loss or theft claim.

What happens if I am in an accident with a leased or financed vehicle?

If the vehicle is involved in a claim the payout will always be actual cash value unless the OPCF 43 has been purchased. 

Leased vehicles: if the balance of the lease is higher than the actual cash value, the insured is responsible for paying the difference.

Financed vehicles: much is the same for financed vehicles. The insured is responsible for paying the difference between the actual cash value and the amount owing to the lienholder.

Differences aside, acquiring a new vehicle is a big financial decision that should be treated as such. Below are some considerations to weigh when reviewing whether to buy, finance, or lease.

Tips for buying or leasing a new car:

  • If you are trading in a vehicle, do your research on its value
  • Test drive
  • Do your research and read reviews (e.g. consumer reports, etc.)
  • Are there features you are most interested in and not willing to compromise on? (e.g. sunroof, park assist, etc.)
  • Do your research on what your payments would be. Often, car manufacturers and dealers have payment calculators on their website that you can use to get an estimate.
  • Determine the frequency you want like to make the payments (e.g. weekly, bi-weekly, monthly, etc.)
  • If you know you are looking to buy, watch for special promotions.

Instances where leasing may be more beneficial:

  • You take care of your vehicle
  • You do not commute or put a large number of kilometres on your vehicle (e.g. you work from home.) More kilometres equal a higher payment monthly, weekly etc.
  • You live in a home with more than one vehicle

Do you have questions on insuring a purchased or leased vehicle? Speak with a Gifford Carr professional by connecting with us today!

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