During the term of your lease contract, you are required to maintain collision coverage on your car, which also includes comprehensive coverage. The comprehensive portion of your policy pays your leasing bank for your vehicle's market value if it is stolen. However, your insurance company does not consider the total value you owe to your bank, which you must satisfy on your own if the payout is not enough.
Insurance Company Payoff
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After your insurance company determines your car a loss due to theft, it then determines the car's market value. Your car's market value may be more or less than the total value you owe your leasing bank. The insurance payment goes straight to the bank and not to you, as it is listed as the policy's loss-payee. When you lease a vehicle, the leasing bank purchases the car from the dealer to then lease to you. Therefore, the bank is entitled to your total insurance check as the car's true owner. Additionally, you become responsible for the car's total cost, not just its lease amount.
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Car Payments
Before your insurance company pays your bank, you can expect to wait through an investigation process. The time you'll wait for your insurance company to complete its investigation differs by insurance provider. Talk to your agent or broker to obtain a time frame. Even though you no longer have your vehicle, you must make any payments due toward your lease. Any late payments are reported on your credit history, which affects your credit score. Continue making payments until the insurance payoff is received by your bank.
Remaining Balance Due
Check your lease contract or purchase paperwork over to determine if you purchased a gap insurance policy when you leased your car. Many leasing banks require gap insurance, which you pay for at the beginning of lease inception. Gap insurance pays the difference between your insurance company's payoff and the remaining balance due to the bank when your car becomes a loss. If you do not have gap insurance and the bank's balance has not been satisfied by your insurance company, you must make arrangements to satisfy your bank. Otherwise, your bank can sue you for the amount due. Non-payment is also reported to the credit bureaus.
Loss of Monthly Payments and Down Payment
If you aren't in a negative equity situation with your lease, meaning that the amount you owe your leasing bank for the car's total value is less than your insurance payoff, you won't receive any of your leasing payments back. Your down payment amount and any monthly payments you made toward your lease belong to the bank. For this reason, it is advisable to put little or no money down toward a lease because of potential loss.