Question: Is it legal for a lienholder to mandate you to have a $500 deductible on a vehicle?
Answer: Yes, it’s legal for a lienholder/lienor, such as a bank or finance company, to tell you what your physical damage deductible amount should be.
According to Progressive, “the lienor may also determine your deductible amount, how much liability coverage you have, and, in some cases, may even appear listed on the insurance policy.”
It is common for your financing paperwork to stipulate that you must carry certain car insurance coverages and list the maximum deductible you can carry on them. If you don’t agree to these parts of your finance contract, you won’t be loaned the money for the vehicle.
Lienholders require that you buy collision and comprehensive, comprising full coverage, for the vehicle to protect their investment in case of an accident.
These coverages pay to have the car repaired if it is damaged or its actual cash value if it’s totaled, regardless of fault. The car is their asset, so they want it as protected as possible.
However, the benefits for those damages start after a deductible amount is paid. So, your lienholder typically also has a say on how much your deductible can be.
In general, lienholders will require that the deductible amount is no greater than $500. This means you can pick a lower amount if you’d like, but not higher such as $1,000 or $2,500.
If your deductible amount is too high, the lienholder believes you may be unable to pay it.
Remember, the deductible is due before your car insurance benefits are paid out. If you can’t pay your deductible, your auto insurance company will not pay for its portion of the repair costs.
Progressive. “What is a lienholder?” Accessed January 2023.
— Penny Gusner contributed to this story.