Mdthbs

Inspired by this question on totaling vs repairing a car and my situation (I'm leasing a car) my question is:

Suppose a leased car, properly insured as per the lease (i.e., comprehensive) is involved in an accident and is totaled by the insurance company.

What are the financial implications to me? I.e., will it cost me money or will I be over it - with no hit to my wallet - after signing some papers?

In general leasing requires you to have an insurance policy that meets certain criteria (such as the policy being comprehensive).

However, in the event that the vehicle is written off the insurance company will give you (their belief of) the value of the vehicle at the time, less any excess, whereas the leasing company will expect you to give them (their belief of) the value of the vehicle at the time.

So you will be liable for any "excess" (or "deductible"), plus any difference between what the insurance company will pay and what the leasing company expects.

You may wish to speak with your insurance company or leasing company to determine if this is likely to happen - it may depend on the insurer and/or the leasing company.

You must pay every dollar of the value of the car as agreed to on the lease. Period.

Some people carry insurance. This insurance will pay out based on the insurance policy. The usual default is that the insurance will buy you a non-smashed used car of comparable make, model, age and trim options. Minus any deductibles.

Note that these are two different numbers calculated in two different ways.

Generally if the second is larger than the first, the money goes into your pocket. That is your equity in the car.

If the first is larger, that means you were upside-down on that car (negative equity) in which case you must pay the difference.

How would you get upside down? One of several ways. That isn't uncommon in a lease, your car takes the biggest depreciation hit the moment you drive it off the lot. It's now a "used car" and sells for less. Or, your previous lease may have been upside down, and rather than make you write a huge check, they folded this debt into your next lease. Happens all the time, and I just described how you can bury an upside-down loss into another new car purchase.

If you don't have the pile of cash to settle up, you can't just walk away; you may be forced to do it again, buy another new car simply to rollforward the debt you can't pay.

It is also possible to buy gap insurance to cover exactly this eventuality. The lender might even make you buy it (not unlike a house's PMI). Obviously gap insuance won't cover old debt you rolled into this lease...

In EU we have additional insurance named EURO GAP, they will pay the rest to new value and my friend after totalling an old Audi got interesting offer - received current value of the car counted by insurer as he left them wreck to be sold in auction - normally they will even substract remaining value of "useless" the wreck (he bought similar newer from that).
Anyway as you pay an extra lease fees over new price, there is almost no chance you do not loose, but with the GAP (can be made for new or almost new cars only) you lost leasing charges at most, but if it is not brand new car, it would not have value you receive, so you can use it some till accident without quite high costs of wear.
Would tell, conditions should be similar everywhere - service and work is expensive, so preferred method is often dispose wreck or sold it not repaired...