Car Lien’s Affect on Auto Insurance Rates

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Joel Ohman
Founder, CFP®

UPDATED: Nov 14, 2016

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Here's what you need to know...
  • When you have a lien on your vehicle, your lender will require additional coverage beyond the state-required minimum.
  • To protect their interest in your vehicle, banks require lenders to purchase collision and comprehensive coverage.
  • These coverage options will cost more. Many factors contribute to your premium, but it will cost more to have full coverage than only having liability.

Having a lien on your car is just one of many factors that go into determining your car insurance rates. How much impact these factors make on your premiums depends on the state where you live, who the lien holder is, and the value of your car.

You can rest assured that if a lienholder exists, you will almost always be required to carry full collision and comprehensive coverage.

If car insurance rates are on your mind, you should take advantage of our FREE search tool to find the best prices by entering your ZIP code now.

If you’re unfamiliar with the terms “lien” or “lien holder,” they’re pretty simple to understand. A lien is simply a legal filing which states someone else has a financial interest in property that you own.

The lien holder is the one who has that interest and has filed the lien. In terms of your car, a lien holder would be the bank that loaned you the money to purchase your car. They have a financial interest in that car until you completely pay back the loan.

Why does having a lien have anything to do with my car insurance?


To understand why liens affect car insurance, you must consider why we have insurance to begin with.

Simple liability coverage required by your state only covers bodily injury and property damage, not the car itself. That means if you have an accident which totals your car, and all you carry is minimum liability insurance, you will have to pay to replace your vehicle on your own.

Banks and other lenders understand that if you have that kind of cash you would not have applied for car loan.

They are operating under the assumption you cannot afford to replace your vehicle out of pocket. This puts them at tremendous risk because your vehicle acts as collateral for the loan.

If you total it, the bank has nothing to take possession of should you default on the loan. For all intents and purposes, they would never be able to collect what is owed by customers who total their vehicles, yet did not have proper insurance coverage.

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Does the law require protecting a lien holder with insurance?

Since insurance laws are so different from one state to the next, it’s not possible to make a blanket statement in relation to state law and lien holder coverage.

What we can say is that there are some states that require vehicles with outstanding liens to be covered by collision and full comprehensive coverage.

In states where it’s not required by law, you will most likely be forced to carry the insurance by your banker through a conditional clause in your loan contract.

If you choose to ignore the conditional clause and forgo carrying collision and comprehensive insurance, it is quite likely that your bank will purchase a policy of its own and pass the cost along to you in the form of higher monthly payments.

They have every legal right to do so, by the way.

The policy they purchase is probably going to be more expensive than what you could get on your own, especially when you figure in the bank’s costs of actually acquiring the policy. You will pay more this way, without a doubt.

What constitutes full collision and comprehensive coverage?

Car accident on the street.


Full collision coverage is defined pretty similarly in all states. It is coverage that will pay for repairs or replacement of your vehicle after an accident that occurs on the public roadways.

Sometimes collision insurance will pay for actions that occur on private property as well. Anything else that might damage your vehicle would be covered under comprehensive insurance.

How much comprehension coverage you have will vary from one insurance carrier to the next.

If you have a lien on your vehicle, your bank may require you to have enough comprehensive coverage to take care of anything that might possibly damage the vehicle.

For example, if you lived in the Midwestern states designated as “Tornado Alley,” you would most likely need a comprehensive policy that will cover your car if it is destroyed in a tornado.

In a nutshell, comprehensive coverage takes care of all those things that collision insurance does not.

These extra coverage options are what cause your car insurance rates to go up. They cost significantly more than minimum liability coverage.

How much they cost will be in relation to:

Once your loan is paid off and the lien is lifted, you will no longer be required to carry these extra coverage options.

It’s important for you to comparison shop for collision and comprehensive car insurance rates. Get started now by entering your ZIP code below!

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