Many people lease their cars these days rather than buying them or financing them. It’s a way to keep a new car in the driveway and keep your monthly payments consistent. But what happens if you total a leased car?
What Is a Lease?
First, let’s define what a lease is. Essentially, a lease is like a rental contract but for a longer term. You make payments (“rent”) on the vehicle, after a down payment, for a set period of time. At the end of the agreement, you can either turn the vehicle in (and maybe get a newer model) or exercise your option to buy the car.
Insuring a Leased Car
Insurance for leased cars works the same as for owned or financed cars. The only major difference can be regarding the minimum requirements for car insurance. While every state has their own minimum requirements, you will have to check your lease agreement to make sure you meet the minimum set forth by your leasing company. These two can be different and it is up to you to make sure you are adequately covered should you have an accident. If you don’t carry the right amount of coverage, the leasing company could cancel your agreement.
What Happens If I Total a Leased Car?
As with any car accident, the first thing to do is to make sure you are safe. Pull to the side of the road, or off the road if you can. Stay with the car and call the police and/or emergency number. Exchange your information with all parties involved, including your insurance information. Make sure you document the scene with lots of pictures. Get the contact information from any witnesses, and of course, contact your insurance company.
If your car is leased though, it might get a little more complicated. You will likely have to notify your leasing company at some point too.
What if I Total a Leased Car and Owe Money?
A car is said to be totaled when it will cost more to repair than it would bring in if you sold it. If your car is deemed totaled, the insurance company gives you the money instead of paying to repair your car. If the car is leased the money goes to the leasing company, not to you.
The bad news here is that if you owe more to the leasing company to satisfy your lease agreement than the insurance payout provides, you still have to pay the remainder to the leasing company. The leasing company will expect full payment for the remainder of your agreement.
The good news is that there is insurance coverage for that. You may want to consider what is called “gap” insurance if you lease a car.
What is Gap Insurance?
Gap insurance covers the very situation we just mentioned: when you owe more than the payout.
The value of your car will usually be less than what you owe on your leasing agreement so it can be beneficial to carry this optional coverage.
If you want to get prices for gap insurance to protect yourself from unexpected lease costs, the InsuranceWins form can help. Just fill out a little bit of information and we’ll help you find a gap insurance provider that will give you peace of mind.
