May 19, 2010

What Forced Placed Auto Insurance Is And Who Needs It

Automobiles and automobile insurance are an inseparable duo. There can’t be one without the other. No state will let anyone drive legally unless they meet minimum standards of coverage for liability and personal injury, and no lender will award someone a car loan without requiring the car buyer purchase comprehensive insurance, so that their lien on the car is protected. It’s a simple fact of life that everyone is aware of.

But what happens if someone is uninsured and drives anyway? It can happen, sometimes intentionally, other times without the owner even knowing it. In the latter case, say he or she signs up online and uses the lowest auto insurance quotes listed as the only criteria for purchasing a particular policy, but don’t pay attention to coverage details. Now he or she is insured against liability and personal injury claims, but the car itself is uncovered. Or, as in the former case, the owner can’t find low enough auto insurance quotes due to too many traffic violations, or is too young to qualify for a good rate, and decides to drive without coverage to save money. What are the consequences?

In the latter scenario, if the state finds out about it, the answer is simple: the state will yank the registration and (in some states) impound the car until proof of insurance is provided. There is no permission to drive, period. In this scenario, and in the former scenario, where the state’s minimum mandatory coverage is met, but the car is unprotected, the reaction will also come from the lender, and that will take the form of forced placed auto insurance.

The name pretty much says it all. The owner is placed with an insurance carrier and forced to buy coverage. This coverage is only for the value of the lien, to cover the lender against loss, and provides no coverage for liability or personal injury claims. In the case of the state not allowing the car to legally be on the road, the owner is put in the position of having to insure a vehicle he or she can’t even use. In the case of the owner mistakenly buying insurance that doesn’t cover the vehicle; he or she is put in the position of paying extra for an additional policy to guarantee the lien holder’s interests.

Forced placed auto insurance is very expensive, as well. But it is a necessity for the lender, to protect its interests. So if a car buyer is in the market for auto insurance, it behooves him or her to pay careful attention to what they’re buying. What they don’t know will come back to hurt them.