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Written by:
Shivani Gite
Contributing Writer
Shivani Gite is a personal finance and insurance writer with a degree in journalism and mass communication. She is passionate about making insurance topics easy to understand for people and helping them make better financial decisions. When not writing, you can find her reading a book or watching anime.
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Reviewed by:
Laura Longero
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Executive Editor
Laura is an award-winning editor with experience in content and communications covering auto insurance and personal finance. She has written for several media outlets, including the USA Today Network. She most recently worked in the public sector for the Nevada Department of Transportation.

Your state won’t require that you keep auto insurance on a car that isn’t registered or driven. The exception is if your car is being financed; your lien holder will require you to keep your full coverage auto insurance active.

State auto insurance requirements are there to protect people you could injure while operating your vehicle. Liability insurance pays for injuries others may sustain in a car crash that was your fault and for the property of others you may harm in an auto accident.

Collision and comprehensive, however, cover your car if it is damaged or declared a total loss. Your lender isn’t concerned as much about others being damaged as it is with the condition of its investment, the car.   

Your loan documents will state what insurance coverage you need to carry on your vehicle.  You can check with your lender about whether you can carry less coverage or take it off completely if you are no longer using your vehicle — but typically the answer is no.

A lender’s mandate for insurance for the life of the loan assures that it won’t be left unable to recover the loan balance if the vehicle is destroyed or stolen (though if you owe more than the vehicle is worth you may also need gap insurance to pay off the full loan balance).

Your lender should be listed as the lien holder and additional insured on your car insurance policy and be notified if you change your coverage levels or cancel your coverage altogether. If they find you no longer carry the coverages they require you to keep on the car, your lender will take out force-placed insurance for the vehicle.

This forced insurance policy protects the lender’s asset if damaged or destroyed.  Some notables about force-placed insurance:

  • The lender is protecting its investment against loss, not you. 
  • The cost of the force-placed insurance will be passed onto you — and it’s not cheap. You now have a lapse in auto insurance coverage, so you become a higher risk. Expect to pay double or more than your standard auto insurance policy.
  • The charge is typically added to your loan payment so that it will be subject to interest.
  • You can avoid force-placed insurance by continuously carrying the auto insurance coverages mandated by your lender with your own auto insurer.
  • To remove forced-place insurance, you will need to obtain a new car insurance policy, with the required coverages, for the vehicle and then get a copy of the policy to your lender.

Instead of ending up in this situation, review your policy coverages to see if there are ways to cut costs. See if there are limits you can lower, extra coverages you can drop (such as rental reimbursement), or deductibles you can raise to lower the cost of your auto insurance premium. However, a $500 maximum deductible may be mandated by your lender.

If you won’t be driving the car, you can ask about low-mileage discounts or pay-as-you-drive coverage.

— Penny Gusner contributed to this story.

Laura Longero

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Laura Longero

Executive Editor

Laura is an award-winning editor with experience in content and communications covering auto insurance and personal finance. She has written for several media outlets, including the USA Today Network. She most recently worked in the public sector for the Nevada Department of Transportation.

John McCormick

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John McCormick

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John is the editorial director for CarInsurance.com, Insurance.com and Insure.com. Before joining QuinStreet, John was a deputy editor at The Wall Street Journal and had been an editor and reporter at a number of other media outlets where he covered insurance, personal finance, and technology.

Leslie Kasperowicz

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Leslie Kasperowicz

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Leslie Kasperowicz is an insurance educator and content creation professional with nearly two decades of experience first directly in the insurance industry at Farmers Insurance and then as a writer, researcher, and educator for insurance shoppers writing for sites like ExpertInsuranceReviews.com and InsuranceHotline.com and managing content, now at CarInsurance.com.

Nupur Gambhir

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Nupur Gambhir

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Nupur Gambhir is a content editor and licensed life, health, and disability insurance expert. She has extensive experience bringing brands to life and has built award-nominated campaigns for travel and tech. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service.

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author image
Contributing Writer

Shivani Gite is a personal finance and insurance writer with a degree in journalism and mass communication. She is passionate about making insurance topics easy to understand for people and helping them make better financial decisions. When not writing, you can find her reading a book or watching anime.