What happens when a leased car is totaled in the USA?

Question from J, What happens when a leased car is totaled in the USA?

Answer from AI:

When a leased car is totaled, it means the vehicle has been damaged to the point where the cost of repair exceeds its actual cash value (ACV). In such cases, the insurance company typically declares the car a total loss. Here’s a general overview of what might happen in this situation:

Insurance Payout

The insurance company will usually pay the actual cash value of the vehicle at the time of the accident. This amount may not necessarily cover the remaining balance of your lease. The difference between the insurance payout and the remaining lease balance is often referred to as a “gap.”

Gap Insurance

Gap insurance is designed to cover the “gap” between the insurance payout and the remaining lease balance. If you have gap insurance, it will cover the difference, so you won’t have to pay anything out of pocket. However, if you don’t have gap insurance, you’ll be responsible for paying the difference.

Lease Agreement

Your lease agreement will typically outline what happens if the leased car is totaled. Some lease agreements may require you to continue making payments even after the car is totaled, while others may allow for early termination in the event of a total loss.

Next Steps

• Notify your insurance company and leasing company: As soon as the accident occurs, you should notify both your insurance company and the company from which you leased the car.
• Review your lease agreement: Check your lease agreement to understand your obligations and rights in this situation.
• Consider legal advice: If the insurance payout and the remaining lease balance are significantly different, or if your lease agreement is unclear, you may want to consult with a legal professional.

Remember, this is a general explanation and may not apply to your specific situation. Laws and regulations can vary by state and by insurance company. Always consult with a legal professional for personalized advice.

For more information, you can refer to the Insurance Information Institute’s guide on gap insurance and the Federal Trade Commission’s guide on understanding vehicle financing.