How Does Force Placed Insurance Work?

Last Updated on December 5, 2019

Force placed insurance is a term that most people are not familiar with. When it comes to car insurance, most people are familiar with their state’s minimum insurance requirements, as well as the insurance requirements of their lender. However, force placed insurance on a vehicle can mean excessive costs and inadequate protection. Learn about force placed insurance, when it happens, and how it works.

What is Force Placed Insurance?

force placed insuranceForce placed insurance is an insurance policy that a lender takes out on a vehicle for which they are owed money and no other coverage is in place. Most lenders require that you have full coverage car insurance on your vehicle for the lifetime of the loan. This protects the lender’s investment, so that if the car is totaled the loan will be repaid. If you fail to have this coverage, you may be subject to force placed insurance.

Most vehicle lien holders require that you have comprehensive and collision coverage on your vehicle. It is likely in your loan agreement that you have to have this insurance coverage, and it is also usually included in the loan agreement that the bank will use force placed insurance if you fail to provide proof of insurance. Of course, the state also requires you to have liability car insurance. If your car insurance lapses or is considered inadequate, force placed insurance may be used.

Differences in Force Placed and Regular Car Insurance

There are some definite differences between force placed insurance and regular car insurance. Your regular car insurance policy should cover liability, or damages and injuries to another party if you are at-fault in an accident. If you get full coverage, your car insurance policy will cover damages to your vehicle and your injuries in a variety of situations, usually after paying a deductible.

With force placed insurance, damages to the other driver’s vehicle are not covered. In addition, no injuries for any party are covered by force placed insurance. Force placed insurance only covers damages of the vehicle that the lien has been placed on, up to the value of the loan. This ensures that if the car is damaged it is repaired, and if it is totaled the bank gets their full loan amount.

Cost of Force Placed Insurance

Do not think that because the lien holder is taking out the insurance policy that they are going to pay for it. They are going to pass the cost on to you, and if you do not pay it they can repossess your vehicle. The cost of force placed insurance is astronomical when compared to regular car insurance. If your bank imposes force placed insurance, you are likely to pay up to 10 times as much for the coverage with the bank than you would a private insurance policy. When you consider that the force placed insurance isn’t even adequate coverage, that is a large difference in price.

When Force Placed Insurance Happens

There are some situations in which force placed insurance may be imposed on you if you have a bank loan on your vehicle. Some people do not insure they vehicle while it is parked or being stored. While you are required to have car insurance by law in most states, you don’t have to maintain coverage if the vehicle will not be on the road.

However, many lenders want the vehicle to be insured even when it is in storage. They want to make sure that the vehicle is protected in case of fire, theft, or other natural disaster. If they see that your coverage has lapsed, they will likely use force placed insurance.

Force placed insurance can also be imposed soon after you get a new car if you fail to provide the lender with proof of insurance within the specified time frame. It is important to have car insurance as soon as you drive the car off the dealer’s lot. Make sure you follow up and send in a proof of insurance to your lender within the required timeframe so that you do not end up subjected to force placed insurance.

If your car insurance lapses for any reason after you buy your new car, you might be subject to force placed insurance. The lien holder on your vehicle is public knowledge, and in some states is even included on the title paperwork for the vehicle. It is a simple matter for the car insurance company to notify your lender that your car insurance policy has lapsed or ended. Not all car insurance companies will notify lenders of lapsed policies, but many will. It is better not to take the chance and keep your policy going continuously.

Finally, if you only get the state required minimum car insurance coverage on a vehicle with a lien, the bank can use force placed insurance to protect their investment. If your bank has recently used force placed insurance, your best option is to shop around for the best car insurance rates and provide proof of insurance to the bank so that you can stop paying for forced place insurance.

James Shaffer
James Shaffer James Shaffer is a writer for and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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