Loss Payee
Candlefocus EditorThe purpose of having a Loss Payee listed on a borrower’s insurance policy is to ensure that the lender is first in line to receive a portion of the insurance proceeds if there is a total loss. This is beneficial to the lender, as they want to ensure that they are reimbursed if the vehicle is destroyed and the borrower has not paid the loan in full. In the event of a total loss, the insurance company determines how much of the insurance proceeds may go to the lender and how much will be provided to the borrower. Generally, the lender will take the lion’s share of the settlement as repayment of the loan.
Insurance companies will usually require a borrower to notify them of the Loss Payee stipulation before they add the Loss Payee to the policy. If the borrower fails to list the loss payee on the insurance policy, then the lender may be refused the insurance proceeds in the event of a total loss. It is highly recommended that borrowers provide proper notice to their insurance provider in order to protect the interests of their lender.
By listing a Loss Payee on an automobile insurance policy, the lender is able to secure an extra layer of protection in the event of a total loss. This helps lenders seek repayment on existing loans and provides an incentive for borrowers to keep their car properly insured.
In short, any borrower who is securing a loan by using a piece of personal property, such as an automobile, should always ensure that a Loss Payee is listed on the insurance policy in order to protect the interests of their lender. Failure to do so may result in their lender not receiving a portion of the insurance proceeds and possible loss of the loan collateral.