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Can my bank charge me for car insurance?

I have my car financed through a bank right now. Can the bank charge me for their insurance policy when I had a gap for two months? I missed two months of payments on my previous insurance, but insurance was a condition of the loan.

Mar 6, 2023 Detroit, MI

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Beth Swanson

SEO Content Strategist

  • Licensed Insurance Agent — Property and Casualty

Beth joined The Zebra in 2022 as an Associate Content Strategist. She is a licensed insurance agent whose goal is to make insurance content easy to r…

Thank you for reaching out to The Zebra. This is an excellent question! When you finance a vehicle through a credit union or bank, they will require you to carry state minimum coverages, as well as comprehensive and collision coverage, on your vehicle. When you get approved for an auto loan the lender will usually write into the contract that if your insurance lapses, they'll obtain insurance for your vehicle on your behalf to protect their interest.

"Force-placed" insurance (or lender-placed) is when you're contractually required to have that coverage, and it lapses (like your two months without coverage) so they will provide the coverage for you. That means they choose the insurer, not you, but they cannot add extra coverages beyond what's required in the loan contract. Placing insurance on the car protects your financial institution in the event you total your vehicle and have not paid off the loan yet, so it is understandable that they need to protect themselves. Force-placing insurance is also referred to as collateral protection insurance. Typically, a lender will reach out to you before they force-place insurance. If by chance someone is actually insured and still gets charged for force-placed insurance, the amount will be refunded by the lender upon proper documentation of coverage.

For specific rules and expectations around your auto loan, I recommend speaking directly to your lender. If you need to find insurance for your financed vehicle and want to be the one making the decisions instead of your bank, then give our agency a call at 888-444-8949 to get a personalized quote.

If you have any other questions about insurance, don't hesitate to ask.

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