A car insurance loss payee is anyone who has a financial interest or stake in your vehicle. Traditionally, this is usually a bank or financial credit institution who writes car loans, but sometimes it can be a person.
This person or institution will notify your auto insurance company in writing that it has a financial interest in your automobile.
For example, if your grandparents helped you buy the car, they would notify the insurance company and prove, with documentation, that they have a financial concern regarding your vehicle, and be listed as a loss payee.
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If you are not certain if your loss payee has made contact with your auto insurance carrier, you should immediately communicate with your agent and then let your loss payee know that he, she or it needs to contact your insurance provider as soon as possible.
Is a lienholder the same thing as a loss payee?
Yes. The bank or financial institution that lent you the money is referred to as the “leinholder” or “loss payee” on an insurance policy. The leinholder or loss payee will be the person or company whose name is listed first on the check from an insurance company in the unfortunate occurrence that your car has been totaled or stolen.
Will I owe the car insurance loss payee if my car is totaled?
This depends if you are upside down on your car payments (meaning your car is worth less than you owe on it) or your car is worth more than you owe.
Let’s use this example. Your car is totaled in a terrible accident, meaning the insurance company decides that it would cost more to fix your vehicle than it is actually worth before the damage occurred.
Your loss payee will get the money from the totaled car first.
This means if you owe $17,000 on your car that was totaled for $20,000, your insurance company will send a check for $20,000 to your loss payee, who will then pay off the balance of your account before sending you the extra $3,000.
Unfortunately, that $3000 usually does not come in a few days – it’s a long, arduous process, but at least it will give you a bit of breathing room when you need to put a down payment on a new automobile.
Now say you are upside down on your vehicle when the car is totaled. Imagine you owe $16,000 on your car, but it’s only worth $13,000 now. If you don’t have what is called gap insurance, you’ll need to make payments to your financial institution for the $3,000 that remains on the loan.
Gap coverage will usually cover whatever is left over between the insurance payout and the remaining balance on your loan, which you now owe to your loss payee.
So, if you know you are upside down in your car loan, it would be a wise decision to purchase gap insurance in the case of terrible accident or theft, so you don’t have to pay your loss payee for something you no longer possess.
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If I lease a vehicle should I have a loss payee and an additional insured?
If you lease a vehicle you may be asked to add your leasing company as an additional insured and loss payee. The reason for this is because when you lease a car you don’t own it – the leasing company does and has provided it to you for use.
Therefore, if you get into an accident and are being sued, the person suing may also come after the leasing company seeing how they truly own the vehicle.
By having your leasing company as an additional insured allows them to reap the benefits of your insurance coverage for defense if there is ever to be a case brought against them.
Do I have a choice to have loss payee clause with my lender?
No, unfortunately not.
Seeing how the financial institution is taking most of the risk by loaning you the money for your vehicle, it only makes sense that they be compensated first by the insurance company in the unfortunate instance of an accident or theft that leaves the car totaled or lost.
The lender will not grant you an auto loan unless you add to the loss payee clause.
If you are thinking about purchasing a new vehicle you not only need to think about a loss payee, but also about the most appropriate auto insurance for you and your family.
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