How it works
The NAIC explains that a financed car is collateral for the loan, so the lender has an interest in it and is listed as the loss payee on the declarations page. The policy wording behind this is often called a loss payable clause, which the NAIC glossary describes as coverage that protects the lender when the property securing a loan is lost or damaged.
In practice, being a loss payee affects claims for damage to the car itself, such as collision and comprehensive claims:
- The lender's interest has to be respected when the insurer pays, so a repair or settlement payment may name both you and the lender. That helps make sure the money goes into the car or toward the loan.
- It does not change who is covered for liability. Claims for injuries or damage you cause to others are paid to those people, not to your lender.
If you refinance, pay off the loan or switch lenders, tell your insurer so the declarations page lists the right company, or no lender at all once the loan is paid.
Related terms
Sources
- NAIC, Glossary of insurance terms definition of loss payable clause
- NAIC, Auto insurance consumer information lender's interest in a financed car and its listing as loss payee
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