What Happens if you Total a Leased Car?

Whether you already drive a leased vehicle or you’re thinking about getting one, you may find yourself wondering what would happen if you got into an accident and damaged the vehicle, or worse, totaled it.

The answer depends on several different factors including how much the vehicle is worth, whether you decide to keep ownership of the vehicle, or whether you have gap insurance or not.

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What happens if you total a leased car?

What is a leased car?

When you lease a vehicle, you are essentially just renting it. This is not dissimilar to when you rent a house- you pay a fixed deposit amount, and then you’ll be required to make regular payments, usually made on a monthly basis.

As the property doesn’t belong to you, at the end of the lease contract, you’re usually required to leave. This is a similar case with vehicle leasing, although in some cases, there may be options available where you can pay a lump sum to take ownership of it indefinitely.

However, unless you make specific arrangements to purchase the vehicle, a lease is an agreement with a leasing company to use a car for a set period of time only.

What happens if you’re in an accident?

Car accidents can be scary at the best of times, but combining that with the worry of knowing that you’ve damaged a vehicle that doesn’t belong to you can be daunting. If the damage to your car is repairable, this should be covered by your insurance, however, you may have to pay an excess sum. 

If you total your leased vehicle though, the process is a little more complicated.

What is meant by ‘totaled’?

Most insurance companies will consider a car as ‘totaled’ if the cost of the repairs is estimated to be more than 75-80% of the total value of the vehicle. 

If I total my lease car, will I be given another?

The short answer is no. But you are reimbursed for the vehicle in some form. If your vehicle is deemed totaled (this is usually done so by a claims adjustor), either your insurance company or a third party’s insurance company will pay you what they believe the car is worth. If you’ve received an offer that you don’t agree with, you are entitled to file an appeal under the Insurance Act. 

You don’t actually have to give your vehicle to your insurance company, and it’s totally legal for you to decide to keep the car and still get paid for your total loss. However, it’s important to note that if you decide to keep ownership of the vehicle, your insurance company will deduct “salvage value” from the overall payment. This is the estimated amount that the insurance company would have received from a scrap yard or auction, had you given them the vehicle.

However, if you decide to hold on to the vehicle, you’ll be required by law to register the car as a salvage title with the DMV immediately until it is fully repaired and deemed road-worthy. This can be stressful, time-consuming, and not to mention expensive. Most people opt to buy a new vehicle or lease another instead. 

How much money will I get?

If your vehicle is totaled, you will receive the fair market value of the car. This can vary dramatically and depends on a whole host of factors including:

  • Make/model of the vehicle
  • Age of the vehicle
  • The mileage on the vehicle
  • The condition of the vehicle
  • The specification of the vehicle

Using this information about your vehicle, an independent calculator will first find a handful of vehicles in the local vicinity that are identical or very similar to yours. Next, they’ll take the cost of these vehicles and average them to determine the estimated value of your vehicle. If you’re apprehensive about the estimate you’ve been given, you can double-check the findings by doing your own research on auto trading websites. 

Feel free to negotiate with the insurance company to find a figure that works for both parties. Sometimes, insurance companies may not have all the required information to determine an accurate settlement figure.

What happens if my vehicle is worth less than I owe on it when it’s totaled?

A common problem with a write-off lease vehicle is that sometimes it is worth less than the amount owed on the car at the time of the incident. This means that any outstanding balance must be paid by you.

This can vary from just a couple of hundred dollars to over $5,000. Fortunately, there’s a way to protect yourself from being liable to pay this outstanding sum - get gap insurance.

What is gap insurance?

If you total your leased vehicle, gap insurance will cover the remainder (“gap”) between how much the car is worth and how much you owe on the car after it has been totaled. 

You should purchase gap insurance at the very beginning of your lease, just in case. If you’re leasing a brand new vehicle with a value of $20,000, the moment you drive it away from the showroom, it can lose hundreds sometimes even thousands of dollars of value.

So, even if you get into an accident right after you get your new vehicle, gap insurance will make sure that you won’t be held personally responsible for the difference between the vehicle’s value and the outstanding balance on the lease. 

Fortunately, many financial institutions require gap insurance with any lease, so you’ll likely be saved from owing any extra cash yourself.

If I total my car, will the insurance company still pay my medical bills?

Yes. Fortunately, car insurance policies have two separate components: property damage and bodily injury.

Neither influences the other, therefore you can still pursue an injury claim even if the insurance company has paid for your total loss.

Do I have to keep paying?

If you total your leased vehicle, you’ll still be required to make your usual regular payments until the claim has been settled.

The lease doesn’t suddenly become void as soon as the car is destroyed, so you must keep on top of your payments.