In a previous blog, we wrote that if you lapse your coverage, your financing company could “force place” insurance on you. Meaning, they reserve the right to purchase insurance for you on your behalf.
Two instances when leasing companies or lenders could force place insurance on you are: (1) if you lapse your coverage and don’t update within the grace period, and (2) if you didn’t purchase the minimum liability limits required by your state and financing company. Sound familiar? Read these for a refresher:
2. Specific Leasing Requirements
When this happens, your leasing company or lender pays the premiums for you but later tacks the amount onto your monthly loan payments. Be warned: force-placed insurance premiums are much more expensive than traditional auto insurance premiums. Why? Well, the underwriting process is different. Your vehicle won’t be inspected, and if you have a clean driving record, that, too, won’t be considered. The high costs are deterrent and retributive. They deter you, and others, from not satisfying the criterion in the two aforementioned instances and punish you if you fail to satisfy the criterion for both.
Just because your leasing company or lender purchases insurance for you on your behalf, that doesn’t mean you, yourself, will be covered. If your vehicle is ever destroyed or stolen, force-placed insurance can help your leasing company or lender recoup some, or all, of the amount you owe on the loan. Also, it may not include liability insurance, which, as we mentioned, most states require. Therefore, while force-placed insurance is pricey, it’s notorious for being insufficient. The policy only protects their interest in the investment, not yours.
Two main takeaways: (1) you shouldn’t lapse your coverage, and (2) be diligent and make sure you have the minimum liability limits required by your state and financing company. Avoiding force-placed insurance is easy, but if something goes wrong, it could lead to a lot of headaches. That is why we are here to help. Hit us up directly if you have any questions!
