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