More and more drivers are opting to lease their new cars instead of buying them. However, leasing a vehicle brings its own set of questions, especially when it comes to accidents. As we all know, being in a car accident is stressful, whether you own or lease the vehicle. But figuring out what to do with a damaged leased car after an accident? That can be confusing, especially if you don't have car insurance.
Consequences of an accident in a leased car
If you're in a leased car accident, the steps are pretty much the same as with any other vehicle—stay at the scene, check if anyone's hurt, and call for medical help if needed. Document any details of the scene and take pictures of the accident if you can—those can be really useful for your insurance claim.
If you estimate the damage is over $2,000, anyone is hurt, or the other driver has fled the scene, call 911 and report it to the police. A police report helps clarify what happened and who’s at fault and can help with any disputes. Plus, your insurance company may ask for the police report when processing your claim.
Afterward, contact your car insurance company to report the accident, even if it wasn’t your fault. It’s a requirement in your policy, and they'll guide you through the claims process, including dealing with the other driver's insurance.
You also need to notify your leasing company about the accident, especially if the leased car is totalled. They’ll want to know the situation and will expect to hear from either your insurance company or the other driver’s insurer, depending on who’s responsible. They may also have specific rules in the lease agreement about the types of repairs allowed or what happens if the car is declared a total loss.
What if you don't have insurance?
First off, let's start with how it's almost impossible to have a leased vehicle without insurance. Whether you own, finance, or lease your vehicle, car insurance is mandatory for all drivers in Canada. And for leased cars specifically, most dealerships or leasing companies won't even let you drive the vehicle off the lot without proof of insurance. That's just how car leases work in Canada. In the following sections, we will explore two scenarios: what happens if you cause an accident without insurance, and what occurs if another driver causes the accident, but you lack insurance:
Okay, but what if you caused the accident and you don't have insurance?
If by some chance you've lapsed on your insurance and no longer have it when you get into a car accident with a leased vehicle, not only would you be driving illegally and at risk for some serious consequences like a significant fine, licence suspension, vehicle impoundment, and possible jail time, but you're also left on the hook for covering everything out of pocket. This means you'll have to pay for the repairs or replacement of the other driver's vehicle as well as any medical expenses or legal fees. If you can't cover these costs out of pocket, you could be sued, and your wages or assets might be garnished to pay for the damages.
You'll also be left to cover the cost of repairing or replacing your own vehicle, as well as any medical costs if you or your passenger(s) were injured in the accident. And if your car accident injuries are serious enough to keep you from working, you won’t be able to access income replacement benefits, meaning you won't have any financial help while you recover.
Further, by driving without insurance, you've broken your lease agreement with your leasing company. This allows the leasing company to take back the car and potentially sue you for any remaining lease payments and balances, which could be substantial since the car is now damaged.
What if the other driver caused the accident and you don’t have insurance?
Typically, when you're involved in a car accident that was caused by another driver, and they're found to be 100% at fault, the other driver's insurance company would cover the cost to repair or replace your leased car. Their insurance would also cover the cost of medical treatment for any physical injuries you suffered as well.
However, because you were driving without insurance, you will likely face personal liability for the repairs or replacement of your vehicle. This means their car insurance company won't cover it. Also, if you're injured, you won't be able to rely on accident benefits coverage to cover the cost of your medical expenses or income replacement. And if you tried to sue the other driver for compensation, it may be denied.
And again, just like if you caused the accident, you still broke your lease contract for driving without insurance. Your leasing company can take your vehicle and sue you for any remaining lease payments and balances.
What type of car insurance do you need for a leased car?
For leased cars, you’re required to have a minimum of third-party liability insurance and accident benefits coverage in Canada. Liability coverage helps cover property damage, medical expenses, and other costs for anyone injured by the at-fault driver up to the policy’s limit. Accident benefits coverage covers you, your passengers, or any pedestrians who are injured in a collision for things like medical bills, rehabilitation, loss of income, and more.
Also, depending on which province you live in, you may be required to carry additional mandatory coverage, like uninsured motorist coverage or direct compensation-property damage coverage, to ensure you're complying with the province's car insurance requirements.
Further, most lease agreements will also require drivers to carry collision and comprehensive coverage. Collison coverage can help pay for the cost of repairing your car if you are in a collision, whether it be a single-vehicle collision or one with another vehicle, while comprehensive coverage can help pay for damage to your car not caused by an accident, such as theft, vandalism, fire, falling objects, and more.
Are there other types of insurance that are essential for a leased car?
Yes. Let's talk about GAP insurance and loss of use coverage below:
GAP insurance
If your car is totalled, your insurance company should cover its current market value. Ideally, this would match the remaining balance on your lease, allowing you to break even and end the lease. However, in most cases, you’ll still owe the leasing company money up to the full value of the car. That’s where gap insurance coverage comes in.
GAP insurance helps cover the difference between what you still owe on your car loan and the car’s current value if it's totalled or lost. So, if you're in a major accident and your leased or financed car is written off, but you still owe thousands on the loan, gap insurance will help you pay off the remaining balance to the leasing or finance company.
Some leasing or financing companies will require you to carry GAP insurance, but not all of them will. If your company doesn't, we strongly recommend you consider adding it to your car insurance coverage anyway.
Loss of use coverage
While this one isn't necessarily essential, it can be very beneficial for drivers involved in a collision. If your vehicle is in the shop getting repaired, or it's damaged beyond repair and needs to be replaced, it may leave you without transportation for a few days or more. Loss of use coverage will help cover your transportation costs while you're without your vehicle. This could include things like public transit fares, taxi rides, or renting a car temporarily.
How does a leased car accident affect your insurance?
If your car is totalled, you'll need to continue paying your insurance until you figure out what you're planning to do next. Most insurance companies will let you stay on your current car insurance policy for about 2-3 weeks while you sort out a replacement car. Once you get your new car, you can set up a new policy (or change your current policy if available). But if you’re not planning to get another leased car, you can go ahead and cancel the policy.
However, if your car can be repaired, you'll first need to talk to your leasing company. As we mentioned earlier, they may have specific rules in the lease agreement about the types of repairs allowed and for how much. For example, they may only allow repairs to be made with OEM parts.
Then, to file a claim with your insurance company, you’ll need all the necessary documents and details about the accident. That’s why we mentioned documenting the scene and taking pictures earlier. But what about your premiums, you ask?
Getting into an accident in a leased car would affect your insurance premiums the same way getting into an accident with an owned car would. If you're not at fault, your premiums shouldn't go up. If you are at fault, you'll probably see an increase in your premiums at renewal time unless you have accident forgiveness coverage, which helps prevent your insurance from increasing after your first at-fault accident.
However, if you got into a leased car accident without car insurance, you can expect that when you go to get car insurance, your premiums will be through the roof. You had an accident without insurance—this shows risky behaviour that insurance companies don’t like. As a result, they’ll charge you much higher rates because of the added risk they’re taking on. You'll likely have to look for high-risk car insurance, which is also more difficult to obtain as not all insurance companies offer it.
What to expect if you're in an accident with a leased car in Canada
If you total a leased vehicle in an accident, you'll need to inform both the leasing company and your insurance company. You'll still be responsible for paying off the remainder of the lease, but your auto insurance will only cover the vehicle’s fair market value. This means you'll have to cover the difference unless you carry GAP insurance.
Does a leased car need different insurance?
Leased cars must carry the province's minimum required car insurance coverage. However, your lease agreement might also require you to get additional car insurance beyond the legal minimum. For example, many dealerships require the lessee to also carry collision insurance, comprehensive coverage, and gap insurance.
Does car insurance cover repairs on a leased vehicle?
Yes, as most lease agreements require you to have comprehensive and collision insurance. These coverages help pay for repairs or a replacement if the vehicle is damaged in an accident or by something else covered by your policy, like fire, theft, or vandalism.
What happens if you return a damaged leased vehicle?
You can technically return your vehicle with damage at the end of the lease, assuming your car is still drivable and you just don’t want to file an insurance claim or get it fixed. However, you’re still responsible for any damage, so there’s not much benefit to doing this unless it’s just a minor ding or scratch.
Minor wear and tear is expected in leased cars, so you likely won't be charged for that. Things like minor dings and scratches, typical wear on your brakes or tires, and even minor stains on the seats are generally considered regular wear and tear.
However, if your car has experienced more significant but still drivable damage to areas like the front or rear end bumpers or the wheels, cracked or chipped glass, large dents, or even paint damage, you'll likely be responsible for paying for it when you return your vehicle.
Make sure you are protected today with BrokerLink
Whether you lease or buy a vehicle doesn’t impact how much you’ll pay for car insurance. For leased cars, full comprehensive and collision coverage is often required, but if they're not, we recommend having both to protect yourself in case of an accident. We also strongly recommend having GAP insurance in case of a total loss.
Talk to a BrokerLink broker today to find the right insurance coverage for your needs. You can reach us by phone, email, or in person at any one of our locations throughout Canada. No matter how you choose to get in touch, a BrokerLink insurance advisor will be happy to assist you. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.
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