Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our opinions or reviews. Learn how we make money.

Understanding force-placed car insurance

What to do when your lender forces you to get insurance.

Updated

Fact checked
Man signing car contract

If you have a car loan, your lender can legally place you with this policy to fulfill its insurance requirements. This force-placed insurance may not give you liability or personal injury protection, leaving you unprotected during an accident and underinsured. However, this situation can happen by mistake—either your lender doesn’t have proof of insurance or you had some other miscommunication that may be easy to resolve.

How does force-placed car insurance work?

If you have a car loan but not enough insurance, your lender can place you with a forced insurance policy to fulfill your contract. This policy is also known as creditor-placed, lender-placed or collateral protection insurance.

Force-placed insurance is legal because most loan contracts require you to keep full coverage on your car at all times. Your contract likely includes a clause about your lender’s right to use force-placed insurance if necessary. When coverage lapses or you don’t add all the coverage required, your lender stands to lose money if your car gets damaged.

Because the lender is most concerned about its investment, the force-placed policy may protect only your car without providing coverage for you, passengers or other drivers. You may need additional coverage to meet legal requirements, which means that you could still be considered underinsured by your state.

Reasons you might receive force-placed car insurance.

You might receive force-placed insurance by mistake, or you could have breached your contract without knowing it. Reasons your lender might place you with this policy:

  • No proof of insurance. Your lender may not have your proof of insurance on file, an easy problem to solve with a few phone calls.
  • Switched providers. You might have switched insurers without notifying or naming the lender on your new policy, leading to miscommunication about whether you have insurance.
  • Not enough coverage. You might not have all the coverage your loan contract requires, such as comprehensive and collision, or minimum coverage limits.
  • Coverage lapse. Your insurer might have canceled your policy after a missed payment or unrenewed term, causing a coverage lapse and breach of your loan agreement.

Is force-placed insurance more expensive?

Yes, a force-placed policy tends to involve a high premium despite its minimal coverage. This rate may be due to the lender perceiving you as high risk, and the increased cost helps the company recover from any damage that may occur under this policy. In addition, the cost may encourage policyholders to address the problem quickly.

What should I do if I have force-placed car insurance?

To clear up the problem of force-placed car insurance, your lender simply needs proof that you have your own policy. Whether you received this policy by mistake or because your coverage lapsed, you can:

  1. Shop for a new insurance provider or call your previous one to reinstate your policy, if you have lapsed coverage.
  2. Pay your force-placed insurance premium to avoid further problems with your lender.
  3. Get a copy of your proof of insurance through your insurance provider.
  4. Contact the lender to verify the correct method and address to send the document.
  5. Send proof of insurance. In many cases, your lender will refund the force-placed insurance premium if you had insurance all along.

What should I watch out for?

Besides getting your force-placed policy lifted, you might watch for several other situations:

  • Denied coverage. Your previous insurer might deny covering you for car insurance. This situation may happen if the company considers you too high-risk after a coverage lapse.
  • Legal consequences. You might not meet the legal requirements for liability coverage, bringing on fines or requirements such as filing an SR-22.
  • Limited income. If your financial situation changed and you can’t afford full coverage, you could contact your lender to explain your situation. If you can’t lower costs, consider selling your car to pay off the loan and purchasing a car that requires less coverage.
  • Car repossession. If you don’t pay for the forced-placed policy, your lender could have the right to take away your car.
  • Car accidents. Getting into an accident could mean paying for damage or injuries from your own wallet without proper liability coverage.

Compare car insurance providers

Name Product Roadside assistance Accident forgiveness Payment schedule States served
The General
Optional
12 months, monthly
All states except HI MA MI and NJ
Snag affordable coverage for high-risk drivers, a marketing claim backed by our rate analysis which showed premiums less than $80 a month.
SafeAuto
12 months, 6 months, Quarterly, monthly (fee applies)
AZ, CA, GA, IL, IN, KS, KY, LA, MD, MS, MO, OH, OK, PA, SC, TN, TX, VA
High-risk drivers can steer into savings from discounts and payment options like reduced premiums with a down payment.
National General
12 months, 6 months, custom
All 50 states
Nab flexible coverage and tremendous savings for drivers who have trouble finding coverage elsewhere. Talk to an agent at (833) 319-0553.
loading

Compare up to 4 providers

Bottom line

You might receive forced-placed car insurance because your own policy got canceled after a lapse. Or your lender may have placed you by mistake, especially if you recently switched providers.

If you do need full coverage or are deemed high risk, consider several insurance providers to find the best fit for your situation.

Frequently asked questions about force-placed car insurance

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and finder.com Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site