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Vehicle Liens and Car Insurance

Vehicle liens and car insurance are connected to one another because the existence of a lien impacts the way you must frame your auto insurance policy. If your car has a lien on it you are required to include certain elements on your policy that would otherwise be optional. Anyone financing or leasing vehicles needs to be aware of the ramifications of this decision on their car insurance policy. It is smart to know all the facts so that you can make good choices going forward as an auto owner and a car insurance consumer.

Types of Auto Liens

A lien in a general sense is a demand placed on a piece of property for the satisfaction of a debt. In the case of auto liens, most of the time the lenders providing financing for the car are its lien holders, retaining their rights to their investment in the car until the lien is satisfied. One of the demands of auto lien holders is that car insurance coverage be purchased and maintained. This protects their interests in the vehicle until it is paid off. The good news for auto insurance policy holders is that car insurance, even if it's student auto insurance deductions, protects our interests as well.

There are other types of auto liens, of course. For example, the IRS might place a lien on a car for the satisfaction of taxes owed by the car owner. These are called involuntary liens. They are different than the ones banks and other lending institutions have on cars being paid for because they include provisions that the car will be seized after a certain stated time period if the tax debt is not taken care of. Often taxpayers who go through experiences like these are able to work out payment plans or other deals if they are unable to come up with the whole sum at once. It is possible to keep your property but it requires you to take action and own up to what you owe.

When a lien is placed on a car or other piece of property by the IRS, it will be sold if some arrangement is not made to repay the amount owed. Only after the entire balance owed is paid will you see any money from the sale. For this reason it is important to act quickly and take these things seriously. Make sure to get things squared away with the IRS, and by all means keep up with car and car insurance payments on the vehicle. This will keep other lien holders at bay and simplify the whole situation for you.

What an Auto Lien Means

Liens from the federal government are not all that common, but auto liens from financial institutions are very common. When there is a lien on your car it means that you are buying car insurance not only to cover your own interests in the vehicle but the lien holder's as well. The lien holder is really the legal owner of the car until you repay all the money you borrowed to make the purchase. This type of lien is a voluntary lien, one you enter into voluntarily. The significance of voluntary liens in car insurance terms is this: the bank or other institution listed on the title can demand more than what the law requires in your state for your insurance policy. And most lien holders do just that.

Collision and comprehensive insurance are standard fare items that lien holders require of policies on cars in which they have an unsatisfied financial stake, including personal and business car insurance policies. But some demand even more than just comprehensive collision insurance, what we would ordinarily call a "full coverage" policy. You may have to insure the vehicle for more than its actual cash value (ordinarily the limit of collision and comprehensive) if you owe more than this amount. Lien holders want to make sure they get their money back in the event of an accident. They need to guarantee the protection of their monetary interest in a car.

Vehicle Liens and Insurance Deductibles

In spite of the fact that lien holders typically demand certain levels of coverage on a car and will even assign a policy to you from an insurer they choose if you fail to keep adequately insured, they will have no part in paying the premium for insuring the car or for paying the deductible in the event of a claim. They require the full payoff of a vehicle if it is a total loss, meaning you could be left essentially paying your deductible for nothing.

Learn all you can about vehicle liens and car insurance. Get quotes on policies that are in compliance with your lien holder's demands and save money on your rates by shopping online using our free rate quote form.


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