Totaling a leased car is never pleasant. The leasing company wants its money back. Insurance companies are trying to pay as little as possible. Stuck in the middle, the individual holding the lease realizes that he is responsible for soaring amounts of debt.
The only recourse is in understanding the process and the factors at play. Knowing the definition of 'totaled,' understanding the various insurance factors and their responsibilities, as well as knowing work with the leasing company provide a solid foundation in successfully maneuvering through this difficult time.
Definition of Totaled
A car is typically considered totaled if the cost to repair the damage exceeds a certain percentage of the pre-totaled value. Depending on the company, this amount could range from 51 percent to 85 percent.
When damage exceeds that predetermined threshold, insurance companies usually refuse to repair the vehicle. It is considered a total loss and, except in rare cases, the vehicle will then be sent to a junk yard where it will be used for parts and scrap metal.
This creates an uncomfortable situation for those who have leased or financed their vehicles. When a car is considered totaled, it becomes the individual's responsibility to pay for or replace the vehicle at the value the leasing company determines it was worth.
Gap Insurance
If your car is totaled or stolen, it will become your responsibility to pay off the lease. The money you gather from any comprehensive and/or collision insurance payouts will not likely cover the entire amount of damages. The "gap" that remains between the amount the insurance paid and the total amount of the lease become out-of-pocket expenses.
Gap insurance, also known as gap protection, prevents this scenario. Just as the name implies, this coverage pays the "gap" between the insurance payout and the remainder of the lease. This limits your liability in the event of a disaster.
Insurance companies typically will not honor gap protection policies unless comprehensive and collision protection is also in effect. Also, you cannot buy gap insurance after the accident. It must be purchased when the lease is initiated or shortly after. Very rarely will a company sell gap insurance later in the lease term.
Many leasing companies include gap coverage automatically in the agreement as a way to protect their asset, the car. A quick review of your lease agreement should state whether this is the case.
Gap Waiver
In some instances, the leasing company may purchase a master gap protection policy from an insurance company. In this instance, you do not individually have gap protection, but the leasing company will include a "gap waiver" in the agreement. This means that you will not be obligated to pay the gap amount in the event of an accident.
Insurance Payouts
Insurance companies will not pay to repair totaled vehicles. Instead, the company will issue a check to the coverage holder for the pre-wreck value of the vehicle. This money can then be used to pay off the vehicle, purchase a new one, or whatever the need of the coverage holder may be.
In most instances, someone who has leased their vehicle will need to use their insurance payout to pay the leasing company. Unfortunately, this lump sum is often not enough to cover the total cost of the vehicle, including taxes, fees and other amounts as determined by the company.
The Remaining Balance
Lease agreements assume that the car will be returned. Since a totaled car cannot be returned to the company, the lease agreement amount is not the primary concern. The individual who leased the vehicle will be required to pay the entire purchase amount of the vehicle.
If there is no gap protection included in the lease agreement or other insurance policies, the individual is solely responsible for making this payment. Comprehensive and collision coverage will usually pay a large portion, but the individual can still be left with thousands of dollars in extra debt.
In most instances, the leasing company will work out a payment plan that is acceptable to both parties. However, some companies will demand the money up front and, without waiting, will send the remaining balance to collections.
At this point, the process becomes solely dependent on the companies, circumstances and insurance policies involved in the transaction.
Tags: leasing company, company will, Insurance companies, lease agreement, vehicle will, companies will
