There are all sorts of complications that arise when buying car insurance for yourself. The presence of a second party definitely complicates matters further. A lot of people who have a lien against their car feel overwhelmed, like they can't make their own decisions about their car insurance, or that they're not truly responsible for what happens to their car because they don't "own it."
To help dispel these rumors, in this article we're going to discuss a little bit about the ins and outs of holders, and how they affect your policy. The first place to start is with a definition: what is a lien, and what is a holder? A lien is a claim on property (in this case, your car) as security for the payment of a debt. That means if you can't pay your debt, whoever has placed the lien (the holder) can take your car away.
A lien can be placed on your car either by choice, or by force. By choice is when you're leasing a car, or when you're borrowing money. You are voluntarily making an agreement with someone else, agreeing to pay that person, and using your car as a promise that you will pay. You understand that if you don't pay, the holder can come in and reclaim your car. A lien placed on a car by force is usually the result of the government - particularly the IRS. If you owe the government money, they will often place liens on your home or car until you pay your back taxes. Depending on the state rules, that lien can be collected whenever you try and sell your car, or the car itself can be forcibly taken after a period of time.
It's worth noting that if your car sells for ,000 and your lien is valued at ,000, you only get ,000 from the sale of the car. Your holder gets paid first. If the car sells for ,000 and the lien is valued at ,000, then you get nothing from the sale of your car, and you still owe the lien holder ,000.
So how does this affect your insurance? It makes you take into consideration the needs of your lien holder, who owns the title to your car. In cases of voluntary liens, such as leasing, you are required to purchase as much insurance as your lien holder wants. This can often include above and beyond standard damage and collision coverage. This is done as a way to keep you from getting out of a lien if your car is totaled. Sometimes, auto insurance companies have special names for these additional policies: Loss Payee Clauses, or Lien holder Clauses
A good thing to keep in mind: if you get into a minor accident, the lien holder has no responsibility - you are still required to pay the whole deductible.