Leasing a car means you don't own it—the leasing company does. When that leased vehicle is damaged in an accident, you're dealing with both insurance claims and your contractual obligations to the lessor. Understanding these obligations helps you avoid unexpected costs.
Insurance Requirements for Leased Vehicles
Lease agreements typically require higher insurance coverage than state minimums:
- Higher liability limits: Often $100,000/$300,000 or more
- Comprehensive and collision coverage: Required, not optional
- Lower deductibles: Many leases cap deductibles at $500 or $1,000
- GAP insurance: Often required or strongly recommended
Check your lease agreement for specific insurance requirements. Failing to maintain required coverage can put you in default.
GAP Insurance Is Critical for Leases
Leased vehicles often have negative equity throughout the lease term—the car is worth less than the remaining lease obligation. If your leased car is totaled, you could owe thousands more than insurance pays.
GAP insurance covers this difference. Many leases include GAP coverage (check your contract), but if not, purchase it separately. The cost is minimal compared to the risk.
What Happens When a Leased Car Is Damaged
For repairable damage:
- You file a claim with your insurance or the at-fault driver's insurance
- Repairs should be done at a shop approved by the leasing company or using OEM parts
- The lease may require you to notify the lessor of any accident
- Diminished value becomes a concern for end-of-lease disposition
For a total loss:
- Insurance pays the leasing company (the vehicle owner) directly
- GAP coverage pays any remaining balance
- Your lease obligation ends, but so does your transportation
The Diminished Value Problem with Leases
At lease end, you either return the car or buy it. If you return a car with accident history, the leasing company may charge you for diminished value at turn-in. Some lease agreements explicitly address this; others are vague.
To protect yourself:
- Document the car's condition before and after repairs
- Keep all repair records showing quality work was done
- Consider pursuing a diminished value claim against the at-fault driver
- Understand your lease's end-of-term provisions regarding accident damage
Notifying the Leasing Company
Most leases require you to notify the lessor of any accident. Check your agreement for:
- Notification timeframes (often within 24-48 hours)
- Required documentation
- Approved repair facilities
- Use of OEM vs. aftermarket parts
Failure to follow these requirements could affect your lease standing or end-of-lease costs.
Repair Quality Matters
Leasing companies care about vehicle condition at return. Substandard repairs can result in charges at lease-end. Ensure:
- Repairs use original equipment manufacturer (OEM) parts when required
- The body shop provides written warranties
- Paint and bodywork match the original finish
- All safety systems are properly restored and calibrated
Early Lease Termination After an Accident
If your leased car is totaled, the lease terminates. But you don't automatically get a new lease on the same terms. You'll need to start fresh, which may mean:
- New down payment requirements
- Different interest rates (money factors)
- Potentially higher monthly payments
If you have equity in the lease (rare, but possible with high-demand vehicles), you may be entitled to any insurance payout exceeding the payoff amount.
Liability When Someone Else Drives Your Leased Car
If someone else drives your leased car and causes an accident:
- Your insurance is typically primary coverage
- You may be liable for damages exceeding your coverage
- The leasing company may pursue you for vehicle damage
Be careful who you allow to drive your leased vehicle. Check whether your lease restricts authorized drivers.
Conclusion
Leased vehicles require more insurance coverage and create more post-accident obligations than owned cars. Understand your lease agreement's insurance requirements, accident notification provisions, and repair standards. Carry GAP insurance if it's not already included. And if your leased car is in an accident, follow your lease requirements carefully to avoid unexpected costs at turn-in.