Can my repossessed car be part of an insurance claim?

If your car is repossessed, a car insurance claim can be made from the lending institution to your insurance to pay for the damages. If you don't have coverage, you will be responsible for the damages to your repossessed car.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 15, 2020

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Here's what you need to know...

  • If you have insurance coverage on your vehicle, the lending institution can make a claim to your insurance to pay for the damages
  • If there are outstanding damages that your insurance does not cover, you will be responsible for paying for them
  • Most dealerships would rather work with you to help you make payments on your car than repossess the vehicle

When a vehicle is repossessed, the financing company — which may be the dealership or another lending institution — retrieves it from the titled owner.

When the dealer repossesses the car, can the dealer then turn around and submit an insurance claim?

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Most lenders require that a vehicle that is being financed have collision coverage. This insurance pays for damage caused by an accident.

Comprehensive coverage may also be required by the lender. This part of the policy pays out if the vehicle is damaged due to other causes than a collision.

It pays benefits if the vehicle is stolen or damaged in a fire, or due to an act of vandalism.

If the damage to the vehicle is due to a collision with an animal, the collision coverage will pay for the cost of repairs.

Avoiding Repossession

Most financing companies would rather work with their customers than take the steps necessary to repossess the vehicle.

A person who is going to be late with a payment should contact the dealer or the financing company right away to discuss the situation.

If the cause of financial difficulty is a short-term cash flow issue, the lender may agree to let the borrower make up the payment without taking any further action.

In a case where the problem is more complicated and will take longer to solve, there may still be options available to the vehicle owner to avoid repossession. The car owner may be able to refinance the loan over a longer term to lower the monthly payments.

Even if the interest rate increases with the new loan, the monthly costs could still be more manageable for the borrower.

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Insurance and Damage to Vehicle

In the normal course of events, if a car that has an outstanding loan on it is involved in an accident, the insurance company will pay for the cost of repairs, less the policy deductible.

If the car is totaled, the insurance company will pay benefits to the lender, not the vehicle owner.

Any amount owing on the loan after the insurance company writes a check must still be paid by the vehicle owner.

If the vehicle was damaged before it was repossessed, the owner would be able to report it to his or her insurance company.

The insurance follows the vehicle, not the owner, and it may be to the owner’s advantage to make a claim so that the car is kept in as good condition as possible.

The dealer or the financing company ultimately wants to recover the amount that remains on the loan. If the car is sold at auction, the price it will bring depends on its condition.

The car will continue to be insured so long as the owner continues to make payments on the policy. Any damage sustained to the vehicle before the policy is canceled will be covered under it, which will allow the necessary repairs to be made.

Damages Caused by Repossession Company

In a situation where the car was damaged during the repossession itself, the situation is a little different. The vehicle owner could look to the repossession company’s insurance to pay for the costs of making repairs to the vehicle.

He or she would have to be able to prove that the damage was caused when the car was towed or during the time the vehicle was out of his or her possession.

Once the car has been paid off in full, the dealer or financing company no longer has any claim to the vehicle. There is no need to be concerned about the possibility of having the vehicle repossessed for missing one (or several) payments.

At that point, the owner may wish to re-evaluate his or her insurance coverage.

While most states require that a car owner possess liability coverage in place, collision and comprehensive coverage may not be mandatory.

An insurance company will only pay up to the cash value of the vehicle if it is totaled in an accident.

In the case of an older model or one that has depreciated, it may not make sense to keep the collision and comprehensive coverage in place.

If you are at the point where you no longer have to be concerned about whether the car dealer can submit a claim for damages on a repossessed vehicle to your insurance company, it may be time to get a new quote for your insurance needs.

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