If my car is repossessed, what happens with my insurance?
What happens with your insurance when your car gets repossessed? If your car has been repossessed, then it typically means you missed a car insurance payment. If you missed a car coverage payment, then chances are also high that you’ve missed a recent insurance payment. In this situation, your lender’s auto insurance may apply, and you may be forced to pay a higher car payment.
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Travis Thompson
Licensed Insurance Agent
Travis Thompson has been a licensed insurance agent for nearly five years. After obtaining his life and health insurance licenses, he began working for Symmetry Financial Group as a State Licensed Field Underwriter. In this position, he learned the coverage options and limits surrounding mortgage protection. He advised clients on the coverage needed to protect them in the event of a death, critica...
Licensed Insurance Agent
UPDATED: Jun 25, 2023
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Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
UPDATED: Jun 25, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
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What happens when your car gets repossessed and what happens to your insurance? If your car has been repossessed, then it typically means you missed a car insurance payment.
If you missed a car coverage payment, then chances are also high that you’ve missed a recent insurance payment. In this situation, your lender’s auto insurance may apply, and you may be forced to pay a higher car payment.
So your car has been repossessed. You have auto loan on your vehicle. But what happens to that policy now?How does a vehicle repossession affect car coverage prices? Can you safely cancel your previous personal lines insurance policy after a vehicle repossession? Will your insurance provider look negatively upon a auto repossession? These are all excellent questions. We’re about to answer them.
Are you required to have full coverage on your vehicle until it’s paid off?
First, let’s make something clear: when you’re leasing a vehicle or making car payments, then you don’t fully own your vehicle. You have a loan contract to keep your loan current and stick to your payment plan.
You must make on-time loan payment, or you’ll have a delinquent loan, and that means your vehicle can be repossessed. The car dealership or their finance company partly owns your vehicle. That car loan lender, in most situations, requires you to keep full coverage on your vehicle until it’s paid off.
If you fail to maintain adequate insurance coverage on your vehicle, then you’re violating the terms of the agreement between the lender and the borrower. At this point, the lender may require the borrower to pay for full coverage. You might also see a surcharge on your next car payment.
The reason lenders require full coverage is simple: lenders are already taking a substantial risk by financing a vehicle.
Vehicles can get stolen. They can be destroyed in an accident. They lose their value over time. Lenders can miss payments. For all of these reasons, it’s understandable that lenders require an extra layer of protection on the asset being used as collateral – the vehicle.
If you, the borrower, can’t make a car payment, then the lender needs to repossess the vehicle and sell the car to recoup its losses. In many cases, the lender will never recover the full value of the car loan, especially when considering the costs of car repossession, selling the vehicle, and securing the residual from the borrower.
Ultimately, repossessing a vehicle is costly, and that’s why lenders try to avoid it whenever possible. It’s better for a lender if a vehicle is wrecked, totaled, or stolen before they can repossess it.
In these situations, insurers will cover the losses. Even if the borrower refuses to put full coverage on a vehicle, the lender may choose to do so and then pass the costs along to the borrower.
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What happens after a repossession?
We’ve explained how insurance works on a vehicle you’re financing or leasing. Now, it’s time to look at the car repossession process.
What happens when you have coverage for a vehicle that has been repossessed after a loan default?
Normally, a car’s coverage is held by the person with possession of the vehicle. However, this isn’t the case when the vehicle is financed. In this situation, the proceeds of a settlement will first go to the lender to pay off the vehicle’s outstanding loan balance and then to the individual who owns the vehicle.
Should you maintain basic liability coverage after repossession?
If your car has been repossessed by the lender, then the situation becomes a little complicated. If your car has been repossessed, then it typically means you have a missed payment. If you missed a policy payment, then chances are also high that you’ve missed a recent payment. In this situation, your lender’s auto policy may apply, and you may be forced to pay a higher car payment.
In other cases, you’ve missed a car payment, but your policy is still active. In this case, it’s in your best interest to continue maintaining car coverage until after the car is sold by the lender.
The reason you want to keep car coverage on a repossessed vehicle is simple: you have full control over the car insurance policy you choose, but you don’t have as much control over the policy chosen by your lender (or the repossession company). Ideally, you’ll maintain coverage on your vehicle until it has been sold or you pay off your balance and the repossession costs.
Can you check with the repossession company to make sure your car insurance isn’t redundant?
There are situations where you may not want to continue paying for car insurance on your repossessed vehicle.
Sometimes, the repossession company will insure a vehicle under their own plan as soon as it’s in their possession. In this situation, your coverage may be redundant once the vehicle is out of your hands, in which case you may get no advantage from maintaining your own liability coverage.
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Will a repossession raise your rates in the future?
A repossession is a financial issue – not a liability issue. Repossession doesn’t require a claim to your insurance and it doesn’t cost your insurance company anything. Theoretically, it shouldn’t increase insurance rates.
Unfortunately for you, your insurance rates will almost certainly increase after a repossession. That’s because a repossession will devastate your credit score. Your credit score has a significant impact on your car insurance.
Fortunately for you, some states make it illegal to use credit score as a factor when determining insurance prices. In these states, your insurance premiums are unlikely to increase after a repossession.
What’s our conclusion?
A vehicle repossession can be messy. If your vehicle has been repossessed, then you’ll typically want to maintain basic liability coverage on the vehicle until it is sold. Once it’s sold, you can cancel coverage by sending in your insurance cancellation letter. The only exception is when the repossession company applies their own insurance to the vehicle after taking possession, in which case your coverage will be redundant and you can freely cancel it.
Frequently Asked Questions
If my car is repossessed, what happens with my insurance?
When your car is repossessed, the handling of your insurance depends on the specific circumstances and the terms of your policy. Here are a few possible scenarios:
- If you have a loan or lease: If your car is repossessed due to non-payment, the lender or leasing company may require you to maintain insurance coverage until the vehicle is sold or returned. In this case, you’ll need to continue paying for insurance to meet your contractual obligations.
- If your car is uninsured: If your car was already uninsured at the time of repossession, it’s important to check with your insurance provider if any outstanding premiums need to be settled. Additionally, you may want to consider getting insurance coverage in case the vehicle is returned or you acquire a new one in the future.
- If you voluntarily surrender the car: In some cases, you may choose to surrender your vehicle voluntarily to the lender or leasing company. If this happens, you should inform your insurance provider about the repossession, and they will guide you on the necessary steps to adjust your coverage accordingly.
Will my insurance rates increase if my car is repossessed?
Generally, a car repossession itself does not directly impact your insurance rates. However, if your car was repossessed due to missed payments or financial difficulties, it may reflect negatively on your credit history. Insurers often consider credit history as a factor when determining insurance rates, so any negative impact on your credit score could indirectly affect your premiums.
Can I cancel my insurance after my car is repossessed?
Whether you can cancel your insurance after a car repossession depends on the specific circumstances and requirements. Here are a few factors to consider:
- Loan or lease agreement: If you have a loan or lease agreement, the lender or leasing company may require you to maintain insurance coverage until the vehicle is sold or returned. In this case, cancelling your insurance prematurely could violate your contractual obligations.
- State regulations: Insurance requirements vary by state, and some states may have specific rules regarding insurance coverage even if the vehicle is repossessed. It’s important to familiarize yourself with your state’s insurance laws or consult with your insurance provider to ensure compliance.
- Future vehicle ownership: If you plan to purchase another vehicle in the near future, it’s generally advisable to maintain continuous insurance coverage. A lapse in coverage can lead to higher premiums in the future when you need to reinstate your policy.
Will my insurance cover any damages or liabilities if my car is repossessed?
Generally, once your car is repossessed, your insurance coverage will no longer apply to the vehicle. However, it’s important to review the terms and conditions of your specific insurance policy to understand any potential coverage or exclusions related to repossession.
- Physical damage coverage: If you have comprehensive and collision coverage, which protect against damages to your vehicle, these coverages typically cease to apply once the car is repossessed. Any damage that occurs during the repossession process is usually not covered by your insurance.
- Liability coverage: Liability insurance, which covers damages to other people and their property in case of an accident, may no longer be applicable once the car is repossessed. This is because you no longer have possession or control over the vehicle, and the responsibility for insuring it may transfer to the lender or leasing company.
Can I transfer my insurance to a new vehicle after repossession?
If your car is repossessed and you plan to purchase another vehicle, you may be able to transfer your existing insurance policy to the new vehicle. Here are a few key considerations:
- Notify your insurance provider: Inform your insurance provider about the repossession and your intention to replace the vehicle. They will guide you through the necessary steps to transfer the coverage or make any adjustments required.
- Vehicle eligibility: Insurance companies typically have specific eligibility criteria for vehicles, including factors such as the age, make, model, and condition. Ensure that your new vehicle meets the requirements of your policy to transfer the coverage seamlessly.
- Adjustments in coverage and premiums: The premium for your new vehicle may vary depending on factors such as the vehicle’s value, safety features, and your driving history. Your insurance provider will calculate the appropriate premium and adjust your coverage accordingly.
Will a car repossession affect my ability to obtain insurance in the future?
A car repossession can potentially impact your ability to obtain insurance in the future, although it may not be the sole determining factor. Here are a few points to consider:
- Credit history: A repossession often indicates financial difficulties and can have a negative impact on your credit history. Many insurance companies consider credit history as a factor when determining premiums. A lower credit score may result in higher insurance rates or difficulty in obtaining coverage.
- Prior insurance claims: If the repossession was accompanied by any insurance claims, such as for accidents or damage, it could affect your claims history. Insurance companies may view a history of claims as an increased risk and adjust premiums accordingly or require additional documentation.
- Insurance provider policies: Each insurance provider has its own underwriting guidelines and policies. Some companies may be more willing to work with individuals who have experienced a repossession, while others may be more cautious or have stricter requirements.
Compare over 200 auto insurance companies at once!
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Travis Thompson
Licensed Insurance Agent
Travis Thompson has been a licensed insurance agent for nearly five years. After obtaining his life and health insurance licenses, he began working for Symmetry Financial Group as a State Licensed Field Underwriter. In this position, he learned the coverage options and limits surrounding mortgage protection. He advised clients on the coverage needed to protect them in the event of a death, critica...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.