Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. Through her years working in th...

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Reviewed by Melanie Musson
Published Insurance Expert Melanie Musson

UPDATED: May 4, 2022

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Whenever you finance a vehicle, you do not properly own the car until all payments have been completed and the car is paid off. Whether you are leasing or simply making payments toward ownership, the financing company is allowing you to use the car on the agreement that you will pay for it incrementally until the loan has been satisfied. So, you may be asking yourself: Will my car insurance cover a repossessed vehicle?

Should you fail to uphold your end of the financial deal, your vehicle would then be repossessed. Unfortunately, your car insurance will not be able to prevent this from happening.

What happens if my vehicle becomes repossessed?

Because you do not own the car outright, you risk losing the vehicle if you fail to uphold your half of the agreement. Missed car payments can result in a vehicle repossession, which allows the financing company to seize your vehicle and hold it until you either pay off the owed money or relinquish your rights to the car.

Once your car has been repossessed, the only way to get it back from the bank is to pay off the amount you are behind on payments plus any applicable fees. Depending on the situation, you may need to buy the vehicle back from the lien holder.

If you are not able to satisfy the loan within the time required, your financing company will sell your vehicle to someone else at auction.

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Will my car insurance cover a repossessed vehicle?

Because you agree to these terms at the time your vehicle is purchased, you must abide by the financing company’s rules. This means that if you lose your car due to repossession, you cannot take any legal action against the bank or lender, and your car insurance will not compensate you for the loss of your vehicle.

Fortunately, your auto insurance will pay for damage caused to your vehicle before and during the repossession process. Whenever you buy insurance for a financed vehicle, your lien holder will require you to maintain full coverage auto insurance on that car until the loan has been paid. There aren’t many options when it comes to getting out of having a full policy. Be sure to check your USAA repossession policy or the rules provided by your particular insurance company.

This means that you agree to carry collision and comprehensive coverage in addition to the state-mandated liability insurance. Your monthly payments will be higher, because you have more coverage than the mandated minimum legal requirements.

How does a repossessed car insurance claim work?

First-party car insurance pays for damage to your vehicle caused by a named peril, such as a collision or vandalism, regardless of who was at fault for the damage. You, as the vehicle’s owner, are responsible for a portion of the repair cost called your deductible.

Once the deductible amount has been paid, the remaining cost of repairs will be covered by the insurance company. If the vehicle is not repairable, the company will offer a settlement cost based on the vehicle’s actual cash value.

In addition to carrying full coverage auto insurance, your lien holder will also require you to repair any damage that your vehicle sustains. This means that if you are involved in a car accident and file a claim with your insurance, you must use the funds from the claim settlement to repair the damaged vehicle. In order to ensure that this happens, the insurance company will issue all claims checks two-party to yourself and the body shop or lien holder.

Insurance for repo cars works similarly. Whenever your vehicle is repossessed, a representative from the financing company will examine the vehicle to see if it has any damage.

What will your insurance company do for repossessed damaged cars?

If damage is discovered, the company will contact your insurance company to file a claim. At this point, an estimate will be written and faxed to the insurance adjuster, who may or may not need to look at the vehicle himself in order to offer settlement.

Because the financing company technically owns the vehicle at this point, the claim settlement check will be issued directly to the lien holder. You are still responsible to pay your deductible, however, and this payment must be made to the lien holder who has your vehicle.

If you fail to pay your deductible or if your insurance is not sufficient to cover the damage to your vehicle, you will be sent to collections for the amount you owe on the damaged car. This means that you will need to pay for damage to a vehicle that you no longer own. Because of this, it’s always important to maintain sufficient insurance on your vehicles and keep enough money set aside to cover your deductible.

Insurance will not always pay for damage to your repossessed vehicle, however. If the insurance adjuster completes the estimate and determines that the damage was not caused by a covered peril, the claim will be denied.

For example, insurance companies will not pay for mechanical damage caused by general wear and tear of a vehicle. At this point, you may be responsible for paying for a portion of the damage yourself.

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What should you do to avoid repossession of your vehicle?

The safest bet is to always maintain your vehicle and keep the appropriate insurance on the car at all times. Make sure that in the event of a repossession, your insurance policy will cover any damage dealt to the vehicle, but the best course of action is not allowing the vehicle to get taken in the first place.

You have many options when it comes to staving off repossession. Let your financing company know if you are having problems paying your car payment so that they may be able to work with you regarding your bill, rather than repossessing your car.

If its a matter of the date, they can sometimes alter when and how you pay so that you’re able to make your payments on time. If it’s the amount, talking with them could potentially lead to lower rates.