Why a Lender Requires You to Carry Home or Auto Insurance
It is relatively rare when we are legally bound to purchase a product. You don’t HAVE to buy a car for example, and you certainly aren’t required to purchase a home. The fact Is, however, if you purchase either of these you may be required to purchase insurance, particularly if your purchase of these items is financed through a lender.
The reasons are fairly straight-forward. Those who lend you money to purchase something of significant value, like a house or vehicle, have a right to protect their own interests. Requiring a borrower to carry insurance is one way they can do that.
Every state already has some form of financial responsibility law for drivers. This means there are basic minimum coverages that must be carried to protect other drivers. But lenders can also require full coverage to ensure their interests are protected. If a vehicle is severely damaged or “totaled”, the lender is assured their loan will be paid. This is why car buyers get a memorandum of title as opposed to the official title when buying a car using borrowed money. The bank or financial institution will hold the title until terms of the loan are met.
It is similar with real estate. A mortgage lender will hold the title until the mortgage is paid. Should there be a major loss, the lender wants to make sure their loan will be covered. Thus, homeowners’ insurance is a requirement.
The bottom line is if a borrower defaults on a loan through non-payment, a vehicle can be repossessed or a property foreclosed on. If either is lost or significantly damaged, they can still be covered by required insurance coverage. This being said, you still have control over who provides the coverage on your car or house. This still allows you the right to choose your insurance agent and company. Of course, we believe it’s best to select an independent insurance agency who can work in YOUR best interests.
Contact us to review your automobile and homeowners’ insurance policies. Let’s make sure you are getting the most effective coverage at the best possible price. As an independent insurance agency, we work for YOU.