What is a Loss Payee?

When it comes to car insurance, there are a lot of different terms that drivers need to pay attention to and familiarize themselves with. Although you may think that you're never going to really need to know these terms, this is not true. If you have to make a claim on your policy, then you need to understand what is going on. The best way to be on top of things is to get familiar with these terms and conditions, like moving policy change requirements, before you even sign up for coverage. That way, you can always be prepared.

One car insurance term that all drivers should be familiar with is a loss payee. A loss payee is defined as an entity or person who has an interest in any loss that you experience in relation to your vehicle loan. This simply registers the interest of a party that has something at stake if anything were to happen to your car. In most cases, the loss payee on your vehicle is going to be the bank or financial institution that has given you a loan for your vehicle. In some cases, this may be a friend or a family member that you will list on your insurance policy.

When to add Loss Payees

The ideal time to add a loss payee to your policy will be when you get your initial financing. That means that you'll have the loss payee added to your policy before you even get behind the wheel. You can see why this would be so important to a financial institution, as most loan providers just want to make sure that the money they lend out is going to be paid back to them. It's really just an extra guarantee that will decrease the risk of giving you the loan.

Sometimes, you may need to add a loss payee to your policy after you have purchased your car. For example, you may decide that you want to refinance your vehicle. In this case, your new financial institution will be paying your old loan off, and you will now have a responsibility to them. If you need to make this change, make sure that you contact your insurance provider and see what changes need to be made. You may have to go and speak to your agent, or you may be able to make the change online.

Total Loss Situations

In the event that your car is in an accident and it is deemed a total loss, the loss payee on your policy will be entitled to receive the money from your insurance company. Once you make a claim on your policy and it is determined by your insurance adjuster that your car is in fact totaled, then your provider is going to mail the check directly to your insurer. If there is any money left over, then you will be given that money by your financial institution.

In some cases, you may end up owing more money to your loss payee than the insurance provider has given you. In this case, you will be responsible for the rest of the loan. Your loss payee may require you to make a lump sum payment to take care of the outstanding balance, or you may be able to keep making payments on your loan. Now that you know what a loss payee is, take the time to discuss these various scenarios with yours and find out how you would go about making payments to them if your car were totaled in an accident.

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