What to Know If You Have an Accident in a Leased Vehicle

Claims involved in an automobile accident while driving a leased vehicle is slightly different than if you actually own the vehicle. In other words, it can be somewhat more complicated when settling an auto insurance claim. The main reason for this is, although a lease agreement entitles you to physically possess and drive the vehicle for the term of the lease, the vehicle still belongs to the company that leased it to you. And, even if the lease agreement gives you a purchase option at the end of the lease – the vehicle remains under the lease company’s ownership for the duration of the lease.

In the event your leased vehicle is involved in an accident, the terms of your lease agreement will decide what your next move will be in regards to your obligations to the leasing company. You may be required to document the damage to the vehicle as well as have the vehicle inspected by a designated automotive service center, chosen by the leasing company to fully assess the damage. In turn, the service center will also provide an outlined estimate of the cost to repair the vehicle, which will then be used for the filing of an insurance claim.

After the leaseholder receives the estimate on damage and repairs, it largely depends on the kind of auto insurance coverage you have as to what happens next. Generally, you or the body shop will receive a payment to repair the vehicle. This amount will be determined by subtracting your deductible. More specifically, should the vehicle have incurred $3,000 worth of damage and your deductible is $300, you’ll be given $2,700 to repair the vehicle…or the body shop will, whatever the case may be. However, if another insured driver is found to be at-fault, their insurance carrier will most likely cover the $3,000 in repairs.

While state law requires that all drivers carry at least the minimum auto insurance coverage, in the case of most leased vehicles, the driver will have little choice in the matter. The leasing company will require you to carry substantially more than the set minimums, which are simple liability and property damage, and mandate you to include collision and comprehensive coverage. Maintaining more extensive coverage on your leased vehicle is a good idea in case you have an accident, or the vehicle is stolen or suffers severe damage in a fire; the vehicle can be repaired or replaced with no major out-of-pocket expenses for you.

An important fact to keep in mind is – when you lease a vehicle – although you may not technically own the vehicle, you are still responsible for damage sustained in an accident.

What is Gap Insurance and can it help if the vehicle is stolen or totaled?

In a serious accident where your leased vehicle is judged unrepairable and is considered a “total loss”, insurance companies are often likely to be stuck for the vehicle’s actual cash value, rather than for the cost of repairing the vehicle. Unfortunately, the vehicle’s actual cash value typically won’t be enough to cover whatever is still owed under the vehicle lease.

The “gap” that exists between what the insurance company will pay for the vehicle and what is owed could be a significant amount, which is why gap insurance is a viable option. A gap policy, making up the difference between what is still owed on the lease and the actual cash value of the vehicle, can be purchased through your insurance company. It’s also possible that your leasing company will insist that you add gap insurance as part of your lease agreement.

In the end, should you decide to lease a vehicle, keep it simple – and, be sure to read the agreement in full to be well aware of all your lease obligations before you sign on the dotted line.

It may also be a good idea to check your policy to make sure you’re getting the best rate on your auto insurance.