Switching Insurance on a Financed or Leased Car: What Your Bank Needs to Know
When you finance or lease a vehicle, you don't actually own it outright until the final payment is made. Until then, the bank, credit union, or leasing company holds the title and has a significant financial stake in the car. This means you cannot simply switch insurance companies whenever you find a lower rate without following specific protocols. Failing to properly notify your lender of a change in insurance can result in severe penalties, including the lender purchasing their own (much more expensive) insurance for you. 1. The Role of the "Loss Payee" When you take out a car loan, the lender requires you to list them as the Loss Payee on your auto insurance policy. What is a Loss Payee? A loss payee is the party entitled to receive insurance proceeds in the event of a total loss (if the car is totaled or stolen). Because the bank holds the loan, they need to ensure that if the car is destroyed, they are paid back the remaining balance of the loan before you receive a...