Auto Insurance: Forced Coverage
When financing a new or used vehicle, the finance company in charge of the loan will require the purchaser to obtain comprehensive and collision coverage for the life of the loan. This is done to ensure payment is received in the case of a total loss, since the alternative would be for the auto purchaser to continue monthly payment installments even after the event of a total loss. It can be difficult for a finance company to ensure payments after the vehicle has been totaled, as they can no longer repossess the vehicle. Therefore, in order to protect from financial loss, finance companies will institute forced coverage on a loan if insurance coverage lapses.
This coverage is so important to finance companies that most dealerships are not allowed to let you leave with your new purchase until proof of insurance can be provided. Often times your insurance agent or broker can add a vehicle to your existing policy or a new policy can be purchased online. Most sales contracts have a provision in them that requires the purchaser to carry coverage, continuously, until the loan has been paid in full. If for any reason the purchaser does not fulfill this obligation they may have forced coverage placed on your vehicle.
Forced coverage only includes comprehensive and collision coverage for your financed vehicle. It does not include liability coverage of any kind and will leave you fully responsible should a claim arise that you are liable for. Often times more expensive than purchasing your own insurance, the price is included in your finance agreement and then tacked onto your monthly payments. Once forced coverage has been placed on your vehicle, the only way to have it removed is by providing proof of comprehensive and collision coverage to your finance company. If forced coverage is placed and you fail to make the additional payment you may be placing yourself at risk for vehicle repossession.
Sometimes forced coverage is applied to a policy as a result of clerical error. In that case, most finance companies have procedures in place that allow them to backdate the removal of forced coverage for those times that a mistake has been made.
Forced coverage is auto insurance protection solely for the finance company. It offers no protection for the purchaser, and is applied in the case that auto insurance is not provided by the purchaser, or lapses.