Can my repossessed car be part of an insurance claim?

A repossessed car is a vehicle that has been forcefully taken back by a lender. You can get your car back, but only after working out the payment details with the lender. 

Unfortunately, you can’t use your insurance policy for the funds you need to reclaim your car. However, if the car gets damaged and you file a claim, your insurance could pay for the repairs.

What is a repossessed car?

If you buy a car and default on the loan by missing payments or not paying the total amount, the lender who gave you the funds to purchase the vehicle can legally come to take the car back. Since you aren’t the outright owner of the vehicle, you don’t have limited options for preventing a repossession. A contract with the lender generally lists the vehicle as collateral. 

Failing to keep up with your payment agreement gives the finance company the authority to take the car and hold on to it. If this happens, you only have two real options for getting the car back. You have to give up your rights to the vehicle, or you have to pay the owed amount plus any fees the lender and repossession company charge. 

In some cases, you get a deadline for paying the owed amount. If you don’t make the payment in time, the company will generally sell the car at an auction to try and get its money.

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How can car insurance help with a repossessed car?

Repossession happens to financed cars. When you sign for a vehicle that’s financed, the lender usually has definite rules in the contract that you must follow. 

The most important is the financial contract, which is the amount and terms of your payment plan with the lender. It also usually states that you can’t take any legal action against the lender if the lender resorts to repossession if you’ve failed your contract terms. 

Because of these contract arrangements, a car insurance company won’t compensate you if you lose your vehicle.

Help With Damages

Another rule generally found in a lender’s contract deals with car insurance requirements. Though there are different insurance and driving laws by state, lenders also have their own insurance rules for financed cars. The financing company usually requires full coverage on a vehicle until you have paid off the loan. 

This is the most comprehensive of policy types, and though you would have to compare car insurance companies, you can usually find the following in a policy:

• Liability insurance to cover at-fault property damage and bodily injury to the other party
• Collision insurance to cover damages from running into a wall, tree, or another vehicle
• Comprehensive insurance to cover damages when a collision isn’t to blame

Non-collision damages could come from fire, vandalism, or falling objects. It also addresses theft. Your state could have special requirements for full coverage, such as uninsured or underinsured motorist coverage or personal injury protection.

If your car sustains damage when towed away or on the repo lot, you could use your insurance coverage to pay for damages. With first-party car insurance, such as collision coverage, the policy pays for things that happen under a named peril. This happens whether or not you are at fault. 

While you might not physically be in control of the car, if it’s in your name and the repo agent backs it into a wall, you can file a claim for the resulting damage.

How do you file an insurance claim on a repossessed car?

You can file a claim with your insurance company if you’ve found that damage occurred to your vehicle during repossession or storage. As long as you have the right policy type, such as full coverage, you won’t be responsible for the total repair amount. Like a regular claim, you will have to pay the deductible on your policy before the company pays for the rest of the repair. 

If your car isn’t repairable, the insurance company will usually offer a settlement according to the vehicle’s cash value. You will still have to show proof of damage to the car and provide the details of the incident. 

If the vehicle wasn’t in your possession, meaning the damage happened after towing, you might need to give your insurance company copies of the repossession paperwork and photos. If the damage occurs while moving the car, the repossession company should contact the insurance company. In these cases, the insurer will usually send an agent to document the damage.

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How does a damaged, repossessed car get repaired?

An estimate for repairs gets sent to the insurance adjuster. Once approval happens, the insurance company will send the settlement amount to the financing company. 

The lender is the legal owner of the car. You must send the deductible amount on your policy to the lender. If you don’t pay the deductible, you can get sent into collections. The same thing happens if you don’t have enough insurance coverage to take care of the repairs. You end up paying for a car you don’t own.

So long as the damages occurred under a covered peril and the insurance adjuster validates a claim, insurance helps with the repair. However, the funds to cover the work go directly to the lender since you lose the legal right to a car when repossessed. You are still held responsible for the costs of the deductible and non-covered damages, putting you further in debt to the lender.

Final Thoughts on Repossession

Following the terms of your lending contract can help you avoid repossession. Although you can’t use a car insurance claim to prevent repossession of your car, you can use insurance to pay for damages incurred in the process.

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