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I Had a Leased Car Accident - Now What?



Ever broken something that wasn't yours? You probably felt guilty and the process of reimbursing the owner was more complicated than if the thing had been yours. Well, this dynamic generally holds true when it comes to leased car accidents.

You may be wondering what happens if you get in an accident or total a leased car?

In the following article, we'll dive into this topic in detail and fill in all the information you need if you've wrecked a leased car. Specifically we'll discuss ….

What Happens if Your Leased Vehicle is Repairable?
What Happens if Your Leased Vehicle is Totaled?
How Does Car Insurance Factor In?

Let's get started…..

What Happens if Your Leased Vehicle is Repairable?

Obviously, the first step after an accident is ensuring everyone is okay, moving the vehicles to safety, calling the police -- in short, following post-accident best practices. Once these steps are done, get in touch with both your insurance company and the leasing company or dealership.

The ownership of a leased vehicle is retained by the leasing company (even if there is an option to buy) and, therefore when it comes to accidents, resolving damages can be tricky.

Your obligation to the leasing company will be spelled out in the terms of your lease agreement. Reviewing these terms is a good idea, but generally, you're going to be required to:

  1. Carry specific Insurance on the vehicle
  2. Notify the company or dealership of an accident
  3. Make sure to document any damages
  4. Get an estimate for repair costs if needed

At the same time you're communicating with the leasing company you'll want to open a claim with your insurance carrier (or an at-fault party's insurance).

Taking the vehicle to a shop that works on the specific make of your vehicle can help smooth out the estimate and repair efforts with leased vehicles. In these cases, you are often required to use only original equipment manufacturer (OEM) parts on the repair or follow a specific set of guidelines.

The idea being, the vehicle is returned to as close to pre-loss condition as possible. So, be sure to consult with your leasing company prior to repairs or face the consequences later.

Once the estimate is complete and you've gotten authorization you can move forward with repairs. The insurance company will either pay the shop directly or cut you a check minus any applicable deductible.

For example, I lease a Honda Civic and my car was in a t-bone accident. I'm insured with Geico and they estimated my car repair to be around $6,000. They agreed to pay for the entire bill but since my deductible was $500, that was my out of pocket expense.

What Happens if Your Leased Vehicle is Totaled?

If you get your vehicle damage appraised and the repair is estimated to exceed 70% of its value, many insurance companies will consider this a “total loss”. If this is the case the insurance company will write a check to your lease finance company, for the market value of the vehicle. None of the reimbursement comes to you because you are not the owner.

This, however, leaves the issue of your lease contract. Perhaps you are lucky, and the cost to buy out the lease is more than the insurance company's total payout. If this is the case, the lease company may refund the difference to you. Unfortunately, this rarely happens.

What is more common is that the lease buyout balance is less than the payout. Leaving a shortfall that you are on the hook for.

The good news though, is that most leases require “gap insurance” coverage for this exact situation. According to Investopedia [1], gap insurance is:

A type of auto insurance that car owners can buy to protect themselves against losses that can arise when the amount of compensation received from a total loss does not fully cover the amount the insured owes on the vehicle's financing or lease agreement.

It may also be referred to a “waiver of contingency”, so review your contract or ask the leasing company for clarification if it's unclear to you.

How Does Car Insurance Factor In Leased Car Accidents?

Car insurance rules apply regardless of whether a vehicle is leased, mortgaged or owned outright. After an accident you can file a claim with your carrier or if you believe the other party is at-fault pursue them/their insurance company.

The only real difference is that with leased car a third party (leasing company) has a vested interest in repairing or being compensated for property damage (vehicle). This means more paperwork, a little more hassle, and a higher standard for repairs.

Every other right normal protection under your car insurance policy still applies:

  • If you've sustained bodily injury you can be compensated for that.
  • You can be reimbursed for lost wages.
  • If you don't feel you're being treated fairly you can retain an attorney, etc.

Some people choose to have their own collision coverage pay for repairs and allow their insurance company to subrogate against the other party. Whether or not this is the right move varies situation to situation.

Summary

Leasing is an increasingly popular option for people wishing to have luxury vehicles without paying the full ownership price. If an accident occurs with a leased vehicle it does increase the difficulty in resolving damages. Just be sure to keep the following in mind.

  • You need to contact both insurance carrier and leasing company after a wreck. If repairable you can be reimbursed or have your insurance company pay the shop directly. The leasing company may have specific repair requirements that need to be factored in.

  • If totaled, the insurance company will likely settle directly with the leasing company. Depending on the lease buyout amount you will either be compensated or owe money, gap insurance is typically there to cover any deficits.

  • Car insurance applies normally to leased car accidents, save for an additional party having a financial interest in the vehicle.


Sources:

1 - Investopedia


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