If a bank that has financed your purchase of an automobile places insurance coverage on your car, it is because you have failed---or your bank believes you have failed---to maintain insurance coverage as promised in your contract. Banks typically will try to contact borrowers before securing insurance coverage, which increases the monthly payment as a result of the extra cost of the bank-added policy.
Insurance Reporting
Insurance providers electronically notify lien holders and state motor vehicle departments of insurance policy changes, such as cancellation, lapse of coverage as a result of nonpayment and coverage changes. Many states require only a liability policy, but lien holders require full-coverage insurance.
Increased Car Payment
An insurance policy that a bank adds to your car is not acceptable coverage for driving legally in states that require liability insurance. The policy protects the bank from loss and does not offer coverage for you. The added insurance often costs much more than a policy you may purchase on your own---as much as $1,000 for a short term.
Removing the Extra Insurance
To resolve the issue, you must secure a policy or reinstate your full-coverage policy immediately. You will be required to make the payment covering the bank's added expense for the time the forced policy is in effect. Once you reinstate your policy or purchase a new one, obtain acceptable forms of proof of insurance as required by your state. Your insurance provider knows your state's requirements and will give you the proper paperwork to provide to your lender. Call your bank to find out if you can bring the proof of insurance to a local branch or if you should email or fax it instead.
Correcting Inaccurate Reporting
If you have maintained coverage consistently, provide your insurer with proof of continuous coverage. You may also ask your insurance provider to contact your bank to provide the proof of continuous coverage. If you plan to visit your lender to correct the situation, find out ahead of time which documentation you need to take with you to prove that you have had continuous coverage. Once you've proved the dates of your insurance policy, the bank will remove its extra insurance from your vehicle and correct any payment issues that resulted because of the added insurance cost.
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