Auto Dealerships And Forced Insurance Coverage
Most drivers don’t pay for their cars outright, but rather use a bank loan for their vehicles. These loans are often provided by auto dealerships that have special deals set up with local banks for low-interest loans with very few questions asked. There are some major advantages for drivers–it’s easier to find a trustworthy car without worrying about the price tag, and large loans can be easily paid off over a three or two year term. It’s also a great arrangement for auto dealerships, which make more sales due to their special arrangement with banks. However, before buying a new car, drivers should be aware of the affect that a loan can have on an auto insurance quote, specifically through forced coverage.
Forced coverage’ is extra coverage not required by law that is required by a car loan lender. The debt of the loan is called the ‘lien’ and the lender, usually the bank, is known as the ‘lien holder’ for the purposes of car insurance contracts. Since the bank has an interest in the vehicle, they’re legally allowed to force drivers to buy certain extra coverage. After all, if something would happen to the car and the driver simply stopped paying loan payments, they would have much less recourse if the car wasn’t insured. Banks therefore structure loan contracts to compel drivers to buy comprehensive coverage, which protects the vehicle in case of theft, natural disaster, or an auto accident. If the vehicle is damaged, the driver’s insurance will cover the costs of repairs.
Most banks' car loan companies also have a term built into their contracts to allow them to buy car insurance if the driver doesn’t. If they do not receive proof that a driver is insured, they’re allowed to buy insurance for the driver. The insurance companies that banks use for this forced coverage often cost far more than the ones that a driver could find using auto insurance quote services online, and on top of the insurance costs, the bank may pile on additional fees. It is therefore very important to show proof of insurance to your bank when starting a new loan, and inform them of any major changes to your car insurance policy (especially if you decide to switch car insurance companies).
If you buy your vehicle through a loan, be aware of any coverage that you’ll be forced to buy. Know the rules of your contract, and you’ll be much less likely to fall out of favor with your car loan company. You’ll also find it easier to get an auto insurance quote that works for you.