It’s legal for a lienholder, or 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.
CarInsurance.com Insights
- Lienholders protect their investment. Lenders have legal rights to ensure financed vehicles remain insured and properly repaired.
- Full coverage is usually required. Collision and comprehensive coverage are typically mandatory until the loan or lease is paid off.
- Claim payments follow strict rules. Insurers often include the lien holder on claim checks for repairs or total losses.
- Policy changes need approval. Dropping coverage or changing insurers without meeting lien requirements can violate loan terms.
- Rights end when the loan closes. Once the lien is released, coverage decisions return fully to the vehicle owner.
What do lienholders require?
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 low your deductible can be.
In general, lienholders require the deductible amount to be no higher 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 fears you will not be able pay it since 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.
Still have a question? Ask our experts
Get advice from an experienced insurance professional. Our experts will help you navigate your insurance questions with clarity and confidence.
Browse all FAQs
