It is called "forced" insurance when the loan company has to put auto insurance on a car because the person with the car has not placed the required insurance on it.

When you obtain a loan to purchase a car there is usually a provision in the paperwork you sign with the financial institution that you will continuously carry liability insurance plus collision and comprehensive coverages. This is so that the lending body's asset, the car, is protected.

The loan documents usually also state that if you do not obtain or keep these coverage that they will secure such coverages and charge you for it. When the financial place gets insurance for you, these charges are subject to interest and the premiums will be higher than if you purchased the insurance yourself.

This forced insurance typically provides protection to the bank or other financial institute, not you, for their interest in the car.

If you are still paying on a loan for your vehicle and have forced insurance on it then you can contact your lien holder to find out what type of insurance it is and the exact coverages placed on car by the loan company.

If you can obtain your own auto insurance policy it will likely cost less than the forced insurance placed on the vehicle by the financial institute which your loan is through.

Also if you owe more on the car than its current actual cash value (are upside down on the loan) then GAP insurance could be helpful if you were in an accident and the car is declared a total loss.