What Does Loss Payee Mean On An Auto Insurance Policy?
When a person takes out a loan to buy a car, the lender must have their financial interest in that car protected under the auto insurance. The method that is used is to add the bank as a Loss Payee to the auto insurance policy through what is referred to as the “Loss Payable Clause” This article will discuss what the Loss Payable Clause is in auto insurance and how it might impact payments in the event of a claim.
The Loss Payee Clause
The wording of the Loss Payee Clause on an auto insurance policy states that any entity which has a lien filed against a vehicle, the lien holder, will be entitled to receive the proceeds from the settlement of a claim by the insurance company. In the event of a partial loss which can be repaired, the auto insurance company will make payment to the repair facility in accordance with the claims handling procedures of the insurance company. The loss payee will get only involved in a claim when the car has been declared to be a total loss.
How is the Loss Payee Clause Used When A Car is Totaled in an Accident?
When a car is declared a total loss, it is the insured’s responsibility to negotiate the settlement amount – the lender is not allowed to get involved. Once the claim amount is determined, the insurance company will send the check to the Loss Payee made payable to both the first named insured on the policy and the lien holder. The lender will then contact the insured to have countersignatures made and to make arrangements to pay off the loan, if the settlement amount exceeds the reaming amount of the loan; any remaining amount will be sent to the insured by the bank. If the settlement amount is insufficient to pay off the loan, the lender and the insured will make arrangements to modify the loan to pay off the remaining balance.
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