In an automobile accident, the insurance company must pay the fair market value of the vehicle at the time of the accident. In a case where you have purchased the vehicle, this is often less than what you owe on the vehicle because the vehicle depreciates the moment it is driven from the lot (it is now a used vehicle). If it is enough to pay off the loan, you often lose your down payment because of this depreciation. On the other hand, in theory, you should be able to purchase a used vehicle for what was owed on your new vehicle, because the used vehicle would have depreciated. As a practical matter, it doesn't work this way because interest rates are higher on a used vehicle loan and you usually must make another down payment. In the case of a leased vehicle, I'm not sure why the money would go to you. It seems to me that the money would go to the lessor of the vehicle. Hopefully, the settlement would be enough for the lessor to put you in a similar lease with no money down, but this might not be the case based on the same problem with a new purchase - you take the hit on the initial depreciation because they are responsible only for the Fair Market Value of the vehicle.
Answered on Dec 05th, 2012 at 9:48 PM