Sign up & start saving!
Get our weekly newsletter for the latest in money news, credit card offers + more ways to save
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Understanding force-placed car insurance
What to do when your lender forces you to get insurance.
Guides
Vehicle Guides
Need Financing?
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:
- Shop for a new insurance provider or call your previous one to reinstate your policy, if you have lapsed coverage.
- Pay your force-placed insurance premium to avoid further problems with your lender.
- Get a copy of your proof of insurance through your insurance provider.
- Contact the lender to verify the correct method and address to send the document.
- 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
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
More guides on Finder
-
Drivers aren’t seeing 100% of insurance savings while claims are down — Are more serious accidents to blame?
Preliminary data on fatal accidents and driving behavior could explain why drivers haven’t seen higher insurance refunds.
-
Permanent life insurance policyholders can now funnel more money into cash value
A new change to the tax code quietly went into effect on January 1, lowering the minimum interest rate for permanent life insurance policies.
-
How to use life insurance to pay for retirement
A permanent life insurance policy’s cash value can be used as a retirement income supplement, though using it reduces your policy’s death benefit.
-
How does a VIN affect car insurance?
Learn how insurance companies use identifying info from your VIN to set rates.
-
What the second stimulus means for your small business
You might be able to apply for more funding on your PPP loan, get a second PPP loan or take advantage of a new grant program.
-
Disability insurance for business owners
Getting a policy can be complicated, but it offers protection for you and your employees.
-
How does teledentistry work?
Replace your biannual checkup with a virtual appointment to save time and stay safe.
-
How to separate your finances during divorce
Ways to protect your assets and what you need to know about marital debt.
-
How long does it take to get disability insurance benefits?
Which type of disability insurance you have influences how long it’ll take you to receive benefits. Find out how long you may have to wait.
-
Compare full coverage vs. liability car insurance
Which type of car insurance policy fits your car and driving needs?
Ask an Expert
