What Happens if You Total a Leased Car?

Totaling a leased car can be a confusing and financially stressful experience, especially if you’re not sure what to do next. Unlike a car you own outright, a leased vehicle is still technically owned by the leasing company, which can make things more complicated when insurance comes into play.

At Compass Law Group, LLP, we understand how frustrating it can be to deal with a totaled car. In this guide, we’ll walk you through what happens if you total a leased car. From understanding how leases work to learning about your financial responsibilities and legal options, you’ll get a full breakdown to help you avoid surprises and protect your wallet.

What is a Leased Car and How Does Leasing Work?

A leased car is essentially a long-term rental. You’re paying for the right to use the vehicle for a set period, typically 24 to 36 months, without ever owning it outright.

The leasing company holds the title, and you agree to return the vehicle in good condition at the end of the lease or opt to buy it at a predetermined or residual value.

Leasing a car in California often includes:

• Monthly Payments: These payments are usually lower than financing a vehicle, and they account for vehicle depreciation rather than the full cost of the vehicle.
• Mileage Limits: Most leases cap your mileage per year and charge overage fees if you exceed this limit.
• Wear & Tear Rules: You’re responsible for returning the car in acceptable condition. Damage beyond normal wear can lead to additional charges.
• Insurance Requirements: You’re typically required to carry full coverage car insurance, including collision and comprehensive insurance policies.

What Constitutes a Total Loss?

A car is considered “totaled,” or a total loss, when the cost of repairs exceeds a certain percentage of the vehicle’s actual cash value (ACV), usually around 70–80%. This percentage threshold varies by insurance company and state law.

Once your insurance company evaluates the damage and deems the vehicle a total loss, they will calculate the ACV based on market value, mileage, condition, and depreciation. That figure becomes the payout cap, regardless of how much is left on your lease.

It’s important to note that this process doesn’t work the same as it would with a financed or owned car. The leasing company, not you, gets the first check from the insurer. And if the payout falls short, you could be responsible for what’s left.

What Happens if You Total a Leased Car?

Once your leased vehicle is declared a total loss, a specific sequence of events follows. Understanding these steps can help you avoid unexpected costs and prepare in advance. Here is generally what happens when you total a leased car:

1. The Insurance Company Assesses the ACV - Your insurer calculates the actual cash value (ACV) of the vehicle at the time of the accident. This is based on factors like age, mileage, and market depreciation.
2. The Leasing Company Is Paid First - Because they legally own the vehicle, the insurance company will issue the payout check directly to the leasing company. This goes toward satisfying your lease balance.
3. You May Still Owe Money - If the ACV is less than the amount remaining on your lease, you’re responsible for covering the difference.
4. Early Termination Fees May Apply - Some lease agreements include penalties if the lease is ended early, even in the case of a total loss. Check your contract or speak with the leasing company.
5. You’ll Need to Return the License Plates and File Paperwork - You may be responsible for returning the plates to your state’s DMV and handling cancellation paperwork with the leasing company.

Your Financial Responsibility After a Total Loss

This is where many drivers get blindsided. Despite the car no longer being drivable or in your possession, you may still be contractually responsible for any outstanding costs. Even if the car accident wasn’t your fault, your lease contract still holds you liable unless another driver’s insurance covers the total amount.

Potential expenses you could be held responsible for include:

• Any Remaining Lease Balance: Any difference between the insurance payout and what you still owe for your leasing period.
• Insurance Deductibles: You are still responsible for your out-of-pocket insurance deductible after the accident.
• Potential Early Termination Fees: A clause in many leases penalizes drivers for ending the lease before the original agreed-upon date.
• Additional Charges: These may include unpaid registration, damage beyond wear and tear, or missing equipment fees.

The Role of Gap Insurance

Gap insurance, short for “Guaranteed Asset Protection,” is designed to cover the difference between your insurance payout and the remaining lease balance in the event of a total loss.

Without gap insurance, you’re responsible for the remaining balance if your ACV payout doesn’t cover it. If you have gap insurance, it covers that difference for you, potentially saving thousands.

Gap insurance is often included in lease agreements or offered at the dealership. However, not all leases come with it by default, so it’s critical to review your contract.

What To Do Immediately After the Accident

If you’ve been in a crash that might total your leased vehicle, the actions you take in the first few hours are critical in protecting both your safety and your financial stability.

Here are the simplified steps on what to do after a car accident in California:

1. Call 911 - Always report the accident and request emergency services if anyone is injured. A police report will also be helpful when dealing with insurance and the leasing company.
2. Document the Scene - Take photos of all vehicle damage, skid marks, license plates, road signs, and any injuries. Be sure to gather witness contact information if possible.
3. Request a Copy of the Police Report - This report will be used by insurers and your legal team to determine fault and validate the damage assessment.
4. Notify Your Insurance Company - Report the accident right away, even if the fault is unclear. This triggers the claim and ACV evaluation process.
5. Inform the Leasing Company - Contact your leasing provider promptly. Delaying this can violate the terms of your lease agreement.
6. Review Your Lease Terms - Your lease may contain clauses about damage reporting, total loss events, and required documentation. Knowing what your policy states can help you prepare your next steps.
7. Preserve All Communications - Save emails, letters, and voicemails from your insurer and leasing company. These can help resolve any disputes that may arise in the future.
8. Contact a Personal Injury Attorney Near You - Get in touch with a team of licensed attorneys to go over your legal options and figure out what your next steps should be.

Can You Be Sued or Held Liable for the Remaining Lease Balance?

The short answer: yes. The long answer is that it depends on the accident circumstances, your lease contract, and your insurance limits. Scenarios where you may be found liable for the remaining lease balance include:

• You’re At Fault and Underinsured: If your policy limits don’t fully cover the damage, the leasing company may come after you for the remaining balance.
• You Default on Remaining Payments: Failing to cover what’s left on the lease after the total loss can damage your credit or lead to the remaining balance going to collections.
• You’re Sued by Another Party: If another driver or pedestrian sues you for injuries, and your insurance coverage is insufficient, you could be personally liable.

What if the Other Driver Was at Fault?

If another driver caused the accident, their liability insurance may be responsible for covering the damages. However, recovering full compensation still requires extensive documentation.

Even if the other party admits fault, you are still responsible for notifying your leasing company and handling lease obligations. You will still need to take the proper steps in order to close out your lease and handle any remaining balances.

When to Contact an Attorney

While not every leased vehicle accident requires legal help, there are several situations where consulting an attorney can protect you financially and legally. You should contact a personal injury attorney in your area if:

• You’re Being Unfairly Blamed for the Crash - If the fault is disputed or unclear, a lawyer can help gather evidence and defend your position.
• The Insurance Company Undervalues Your Car - If you believe the ACV offered doesn’t reflect your car’s true worth, legal support can help challenge the payout.
• The Leasing Company Pressures You for Payment - An attorney can negotiate lease balance issues, especially if you lack gap insurance or face early termination penalties.
• Another Driver Was At Fault - A lawyer can help you recover damages from the at-fault party’s insurance provider, including out-of-pocket lease costs.
• You’re Facing a Lawsuit or Liability Concerns - If someone else is involved in the crash and sues you or files a claim beyond your insurance limits, our attorneys can support you throughout the legal process.

Common Mistakes to Avoid After Totaling a Leased Car

In the stress and confusion following an accident, it’s easy for things to slip through the cracks. Knowing what to steer clear of can strengthen your case and ensure you get the compensation you deserve.

These common pitfalls include:

• Not Contacting the Leasing Company Right Away - Delaying communication can violate your lease terms and lead to penalties.
• Assuming Insurance Covers Everything - Without gap insurance, you may still owe thousands after a total loss.
• Overlooking Early Termination Fees - Many drivers are surprised to learn they’re still responsible for certain fees, even when the car is gone.
• Failing to Read the Fine Print - Your lease and insurance agreements contain important details about damage, liability, and required procedures.
• Not Documenting the Accident Properly - Skipping photos, statements, or police reports can hurt your case, especially if you need to prove fault or contest an insurance payout.

Protecting Yourself Moving Forward

Now that you know what happens if a leased car is totaled, you’re better prepared to protect yourself in the future. If you’re currently leasing a car or considering it, it pays to be prepared in the event of a total loss.

These steps can help reduce risk and financial exposure:

• Always Ask About Gap Insurance - Confirm whether gap insurance is included in your lease or needs to be added separately. This small coverage can prevent a huge bill.
• Understand Your Lease Terms - Before signing, read the fine print on early termination clauses, damage policies, and what happens in a total loss.
• Keep Detailed Records - Maintain a folder with your lease documents, insurance info, accident reports, and any communication with insurers or lessors.
• Know What to Do After an Accident - Save a checklist or bookmark a resource like our guide so you’re ready if something happens.
• Consult Legal Help When in Doubt - If you’re facing bills you don’t understand or feel like your insurer isn’t giving you a fair deal, speak with an attorney right away.

Need Help Navigating a Totaled Lease? Contact Compass Law Group, LLP

If you’ve been in an accident and totaled a leased car, don’t leave your financial future up to chance. The experienced personal injury attorneys at Compass Law Group, LLP can help you understand your rights, deal with the insurance companies, and minimize your liability.

Contact us today for a free consultation and take the first step toward protecting your interests and recovering what you deserve.