When you lease an apartment from a landlord, you don’t really own the apartment, the landlord does. It’s the same thing when you lease a car. Although your lease agreement entitles you to possess and use the car for the term of the lease, the car still belongs to the company that leased it to you. This is true even if the lease agreement contains an option to purchase the car at the end of the lease -- the car is still owned by the leasing company for the duration of the lease.
So if you don’t really own a leased vehicle, what happens when you get into an accident while driving your leased car? This article discusses some of the unique legal issues that can arise in cases like this, particularly your obligations to the leasing company and the special insurance considerations when it comes to leased vehicles.
When your leased vehicle is involved in a car accident, the terms of the lease agreement will determine what you are required to do, and will spell out your obligations to the leasing company. The leasing company will likely require that you document any damage to the car. That means you’ll probably need to get the vehicle inspected at an automotive service center designated by the leasing company, to ensure that the full extent of the damage is assessed. The service center (possibly with the assistance of an inspector retained by the leaseholder) will also provide an estimate of what it will cost to repair the vehicle. This documentation of damage to the vehicle and the resulting repair estimate will also be important to the filing of any insurance claim stemming from the accident.
Once the leasing company has received the damage report and repair estimate, depending on the kind of insurance coverage you have, you may receive a specified amount of funds to get the car fixed. This amount could be calculated by subtracting your deductible from the repair estimates, as assessed by the mechanic or inspector employed by the insurance company. For example, if the car needs $3,000 worth of repair work and your deductible is $500, you’ll get $2,500 to fix the vehicle. Of course, if another driver is at fault for the accident, you’ll likely be able to recover the full $3,000 from his or her insurance carrier. Learn more about Who Pays for Vehicle Damage After a Car Accident.
State laws require that all drivers carry at least a set minimum of auto insurance. But the terms of most car leases require the driver of a leased vehicle to carry insurance above and beyond those statutory minimums -- including collision coverage and comprehensive coverage. Even when this isn’t a term of the car lease, it is still a good idea to maintain more extensive insurance coverage to protect you, in case an accident occurs. It is important to remember when leasing a car that, although you do not technically own the vehicle, you will likely remain responsible for the damage that occurs in the event of an accident.
In the event of a serious accident where your leased vehicle is deemed a “total loss.” a car insurance company (yours or the other driver’s) will likely be on the hook for the vehicle’s “actual cash value,” and not for the cost of repairing the vehicle. However, the car’s actual cash value may not be enough to cover the remainder of what you owe under the vehicle lease. The resulting “gap” between what the insurance company will pay for the car and what remains owed on the lease may be a substantial amount. This is where gap insurance comes into play. You can purchase a gap insurance policy that will make up the difference between what is owed on the lease and the actual value of the car. Some leasing companies may even require you to purchase gap insurance as part of the lease agreement. Get more tips on Car Accidents and Insurance Coverage.