Insurance and vehicle repossession

Insurance and vehicle repossession intersect when a lender takes back a car due to missed payments, while insurance covers financial loss from damage or theft. Lenders require borrowers to maintain full coverage auto insurance, such as comprehensive and collision, until the loan is paid off.

If you default on your insurance policy, lenders may force-place their own insurance, often at higher premiums; for example, force-placed policies can cost up to 2–3 times standard rates according to the Consumer Financial Protection Bureau (CFPB). After repossession, your insurer will not cover personal items left in the vehicle; only damages listed under your policy are eligible for claims.

Repossession does not automatically cancel your auto insurance–you must contact your insurer directly to terminate coverage. Insurance companies do not pay off remaining loan balances after repossession unless you have gap insurance; gap policies covered $1 billion in claims in 2022 per the National Association of Insurance Commissioners (NAIC).

A repossessed vehicle with lapses in required insurance can result in negative credit reporting by both lenders and insurers; Experian reports that payment delinquencies drop credit scores by an average of 100 points. Comprehensive or liability-only policies do not prevent repossession if you miss payments–insurance protects against physical loss but does not replace loan obligations.

Forced-placement of lender’s insurance typically provides less protection for you and more risk exposure compared to standard consumer-purchased policies, as per YourInsurance.info (Your Insurance Info).