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What Should I Know About A Car Insurance Loss Payee?

If someone has financial rights to your vehicle because you haven’t fully paid off your loan, that person is known as a car insurance loss payee. Generally, the loss payee is a lender that is federally licensed to provide individuals with auto loans. Legally, anytime you take out a loan for your vehicle, the party that is providing the money will be required to have contractual proof for the agreement. When the agreement is in place, usually a set amount of interest is agreed upon so that the lender can make money from the loan that you have taken out.

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.