What happens if my car is totaled and I still owe my loss payee money?

If you still owe your lender money, but your vehicle is totaled, hopefully you were smart enough to follow the guidelines and purchase adequate insurance. If you did not purchase enough insurance, you may have to pay for all damages out of your own pocket, which can get ugly. The first thing you should always do whenever purchasing a new vehicle and dealing with a lender is to make sure you have enough insurance coverage.

Individuals that did not purchase what’s known as “gap insurance” are going to have to pay the difference (between the value of the vehicle and the unpaid loan balance) out-of-pocket if their car is totaled. For this reason, it is always recommended that you get an insurance policy that will have your back should you be unlucky enough to ever have your vehicle totaled in an accident.

Will my insurance company pay me or my loss payee?

It is important to know who is going to be the primary recipient of money from your insurance company following an accident. In many cases, the loss payee (also commonly known as the “car insurance lien holder”) will be the one who directly receives the money from your insurer. It all depends on the type of contract that you entered though, sometimes you may be the primary recipient of the money if you and your lender have a different agreement.

For a hypothetical example, let’s say that you owned a vehicle valued at $16,000 that was unpaid. If it is brand new, it still likely is close to full value at $16,000 – so if it is damaged and you have enough insurance, you will be fully reimbursed for the $16,000 (you will likely need gap, comprehensive, and collision coverage). Anyways, if you totaled your $16,000 vehicle and your loss payee is the one receiving the insurance reimbursement, they will be given the money and you will be credited for what you have been given.

If you still owed $4,000 on your vehicle – the loss payee would initially pay off the remaining $12,000 on your account before they send you the $4,000. So you may have to wait extra time for the check to go through and be issued and processed in your bank account.

Should I add my lease company as a loss payee?

If you are leasing a vehicle, you may not be given a choice as to whether you should list the company providing you with the lease as a “loss payee.” Sometimes you may be required by your lease company to list them as a loss payee because you are not yet the rightful owner of the vehicle. The reason that they may contractually demand to be listed as the payee in the event of a loss is because they want to make sure they get all of the facts straight and collect what they deserve from the insurance company before you get your fair share of the money. Technically speaking, insurance can get quite complicated because the lease company can actually be dragged into certain claims and settlements. For this reason, most will require that you list them on your policy.

Isn’t it up to me to decide whether I include my loan lender as a loss payee?

Most of the time it is NOT up to you to make a decision regarding the loss payee. Why isn’t it up to you? The reason that it isn’t up to you is because you don’t have enough money to pay off your vehicle. Since you are the person receiving money to help make payments, the company that is lending you the money deserves to get paid before you do.

Hopefully all of this makes sense to you because it really isn’t too complicated. All it involves is your lender collecting money from your insurance company to make sure they get their fair share, and then they pay you what you deserve from the remaining balance.

If you would like free quotes and to find out more about the loss payee on your car insurance policy, be sure to enter your zip code and check out the reliable providers in your area.

Auto liens 101: Taking out a loan

First off, it is important to understand how a lien could be placed against your automobile. An auto lien is when you fail to pay off your end of the contract or loan, the lien holder can essentially notify you that they will take away your vehicle. In most general terms, people can have liens placed against their property (i.e. house) if the financial implications are high.

When a person purchases a new car, either they have enough money to pay it off in full or you take out a loan. Whenever you take out a loan, you run the risk of having to deal with a lien. People that take out loans must continue to make the monthly payments towards their loans with the agreed interest rate as stated in their contractual agreement with the bank or credit union.

Failing to pay back loans results in a lien

If you do not pay back your loan on time, the company that is lending you money (whether it’s a bank, credit union, etc.) will repossess your property by placing a lien on your vehicle. Since you do not currently have enough funding to pay off your vehicle in full, you need some financial support. If anything would happen to your car, the entity that is lending you money knows that you wouldn’t have enough to pay off the damages in full. So in turn, they require that you continue making your payments on time as well as that you buy the appropriate amount of insurance.

What is a car insurance lien holder?

A car insurance lien holder is put in place to make sure that you purchase an adequate insurance policy when you do not fully own your vehicle. They will generally mandate that you purchase both fully comprehensive insurance as well as collision coverage. Although your insurance premiums may be fairly high, it is essential that you purchase a quality policy when you are not yet the full owner of your new vehicle.

If you do not buy the appropriate amount of insurance, the lien holder will notify you that a lien is in order – and they will send you the paperwork. From the date that you receive the paperwork, you will have a set number of days to resolve the problem. Either you start making payments soon, or the bank will come and take away your vehicle. Payments will be required for both an insurance policy as well as towards your vehicle.

Always stay up to date with payments

Even though it may seem like it is completely unfair to have to deal with a lien, looking at the situation from the perspective of a lender giving you money may change your perception of the situation. Whenever you have to deal with the lien, it is important to take full financial responsibility and try to come up with the money to pay for the interest on your loan as well as the appropriate amount of insurance.

For new and leased cars, you will want to make sure that you buy what is called “gap car insurance” – which is likely a type of coverage that is required by your lender. If you want to get a quote on a comprehensive policy as well as gap coverage, be sure to use the zip code tool at the top of the page for a free comparison. All you have to do is enter your zip code and the leading insurance companies in your area will give you free quotes. Getting a good deal on your insurance policy is very smart if you want to have extra money in case you ever have to deal with a lien!

In some cases, cars that have been previously totaled are professionally repaired to good condition so that they are drivable. When these refurbished vehicles pass inspections tests, they can then be sold and legally driven again. The vehicle will now have a rebuilt title due to the fact that it was previously listed as salvaged (or totaled) and is now operable. If you are interested in finding out how rebuilt titles could affect insurance rates and quotes, be sure to use the free tool at the top of the page by first entering your zip code.

How will my insurance be affected if my car has a rebuilt title?

As long as your vehicle passes proper safety inspections and is legal to drive, the fact that the title is rebuilt shouldn’t affect your rates significantly. Some insurance companies may charge you more because the parts of your car are not in new and highly functional condition like they were when you first purchased your vehicle. However, your insurance rates will be more based on your risk profile that you have developed over a period of time.

The main concerns with rebuilt titles are that the safety features may not work as well as they originally did and that the vehicle may not have as good of a security system as it originally did either. Your insurance rates will be determined based on your current rebuilt car – the insurance company may ask to conduct an inspection on a rebuilt title so that they get all the facts straightened out.

What type of insurance should I get for a vehicle with a rebuilt title?

It is recommended that you get an insurance policy that makes you feel the most comfortable with your rebuilt vehicle. If your car doesn’t have much value after being rebuilt, you may not want to get a comprehensive policy. Instead you may want to focus on taking higher deductibles and getting the minimal amount of property damage and liability coverage. Most owners of old, rebuilt, and used vehicles don’t purchase collision coverage either because it if is damaged again, there’s really no reason to continue driving it.

If your vehicle has a rebuilt title, but is still in elite condition and is worth a lot of money, it would be wise to get both comprehensive and collision coverage. Ultimately you need to weigh the value of your vehicle against the amount of money you will be spending on an insurance policy. Ask yourself what the most practical decision would be on an insurance policy for a vehicle that is listed as having a rebuilt title.

Why would anyone want a vehicle with a rebuilt title?

Some people don’t have the money to go out and buy a new car, so they get one that has been rebuilt. Rebuilt vehicles are generally cheaper to buy and as long as they work, most people are happy. As far as insurance is concerned, you may not need to purchase as much coverage because the value of the vehicle has dropped considerably since the title change. If you are thinking about buying a rebuilt car, hopefully you realize that the primary advantage comes in savings.

The disadvantage is that the vehicle is “rebuilt” and may not work as well and/or be more subject to broken parts and mechanical errors in the future. Hopefully this article helps you come to terms with your decision to buy a rebuilt vehicle.