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. This being said, in most states if you were not at-fault in the accident that totaled the vehicle you would place a claim with the other party that caused the collision.

The at-fault party's insurance company should determine if the car is a total loss and if it is then calculate the actual cash value. If the ACV is less than what is owed on the vehicle, the settlement money would go to the lending institution and you would be responsible for the balance still due on the car.

If for some reason you must make a claim through the insurance the lien holder purchased, instead of the at-fault party's carrier, you would have to check with the lending institute or their insurance company to find out what coverages the vehicle has according to the terms of their policy.

In cases like this it is helpful to have GAP insurance. This type of insurance would pay the difference between the actual cash value and the balance of the loan. When you buy your next car get a free car insurance quote here with us that will cover your needs.