Cybiker

I just received a letter from the credit union whom I am financing my car through, and they are claiming that my insurance coverage does not meet their "requirements." When applying at the dealership and signing the papers for the car, I do not remember these "requirements" They are stating that I need to lower my comprehensive and collision deductibles from $1,000 to $500.

I do not understand why they would these deductibles to be lower as I am financially responsible to pay these if anything happens. They are stating that If i do not mail them proof that these have been lowered to $500 then they will purchase Collateral Purchase Insurance at my expense. Do they have any right to do this?

Anyone have any clue why it would benefit them for myself to have lower deductibles?

1Louder

I've never heard of this. So long as you can cover the deductable, I can't see how it's any of their business. I'd do a couple things - get on the phone with someone from the credit union (that's higher up) and confirm this is true and not just a scam (maybe they also sell insurance...). Second I'd ask your insurance agent to also see what they say. If it's really true, I'd refinance with another bank that you're sure does not have this rule. Vote with your feet, and give someone else the interest payments.

mickey513

The requirements from the credit union are actually lower than the car company's finance department. I went through financing with my sister on her TSX through a local credit union and they only required 50/100 BI (Body Injury). I got my financing on my Acura through AHFC and they requird 100/300 BI.

Both required 500 on comprehensive & collision and YES they do have a right to take out collateral insurance on YOUR EXPENSE for not meeting their requirements.

markbento

Remember even though we think we own the car we do not they do they have the titel to it and they can do anything they want as long as they hold that small paper.
they can and will charge you the cost for the insurance so it might be better for you to just get the 500 and pay less for that than the one they will get and make you pay for it.

LuvMyTSX

I just don't understand what difference the amount of your deductible makes to them. You are the one who has to pay it. I could see the actual amount of coverage being an issue, but the deductible? Not so much.

dallison

yes, they do have those requirements. you want their loan, you go by their rules.

phile

High deductible, low coverage. They want to make sure THEIR car (not yours) is adequately insured. $500 deductible is lowest deductible, the industry standard. So that's why they're requesting you get that deductible.

When your deductible is $750 or $1000 or higher, your premium is lower, but your coverage may also be lower. You get what you pay for.

black label

It's because the banks feel that a $1000 deductible is excessive. It's basically a risk assessment issue. They feel that you are less likely to have repairs done if you have to pay $1000 out of your pocket.

If you had $800-$1000 in damage you the car you financed, they are concerned that it will not be repaired because you have to pay. If at a later date they need to repossess the car, they run the risk of losing money because the car is not worth what it would have been if it had been repaired.

TzarChasm

Exactly. They figure someone who is trying so hard to save money that they raise the deductable on their insurance is never going to have the $1000 is costs to get something fixed. They are worried that you are going to have $10,000 worth of damage to the car then just walk away because you can't ever afford the $1,000 to ever have it fixed anyway.

Companies requiring a minimum level of insurance is pretty standard.

achenator

That is bullshit, i have a 1k deductible. I'm not trying to skimp by raising my deductible. It's just that it doesn't really matter to me if when in the slim instance I do have to pay a deductible. it is not a big financial strain on me whether it is $500 or $1000. I figure that is the chance I'm willing to take. Most people only need to use their deductible once or twice in their whole life.

davidspalding

Welcome to the world of car loans, Cybiker. Check your paperwork, all car loans I've applied for they specify in the fine print what minimum insurance you must maintain while they have a lien on the property. (Similar conditions apply for a mortgage loan.) You probably got the interest rate that you did with this as a provision.

I've always felt it was because they perform a credit check on the borrower, and consider the risk of the borrower having to cough up $500 for an unexpected no-fault or at-fault collision. If they allowed a $1000 deductible, they might charge more interest, or decline to finance the car at all (cost of car + monthly insurance premium + possible $1000 expense > borrower credit worthiness). For a living example, go back a few months for the post from a fellow who crashed his car, approved the body shop repairs, but didn't have the deductible in hand and wondered if the body shop would let him pay in installments or something. Much chuckling in the thread, but the bottom line was he had to scramble to raise the cash. Banks are aware of these kinds of situations.

Aaaaanyway. If you're really, really pissed about this, you could shop around and see if another bank or CU or S&L would like to finance your car and assume the loan, with your requirement that you only have to maintain $1000 deductible coverage. You could get lucky, find a better interest rate than when you originally finances.

Not that my experience is conclusive, but when I've shopped for insurance, I found that increasing the deductible from $500 to $1000 was barely the cost of a dinner for two. YMMV. I've considered $250 deductible (had it for a while, for a very cheap car), but the cost ends up covering the occasional accident after 1.5 years or so. Feh.

phile

^ But that's you. Not everybody's like you, the majority of people who buy with a 1k deductible so do for the lower premium which in most cases come with a lower coverage. And as black label stated, they're more than likely to NOT report a claim or get a car fixed because of their 1k deductible.

achenator

I understand about the barely dinner for two difference, but I'm insuring 3 cars.

grime015

this is pretty standard practice. the lien holder wants to insure that if anything happens to the car that you will be able to afford to pay the deductible.

black label

There isn't really a correlation between the amount of coverage and the deductible (in MA at least). Most banks require 100/300 coverage while there is a lien on the car. For example, you can have 100/300 with a $1000 deductible for $1500 per year or with a $500 deductible for say $1600 per year. The higher your deductible, the lower your yearly (monthly) costs will be for insurance but it doesn't automatically lower you coverage as well. They are 2 independent items which combine to determine your yearly cost for insurance (along with your driving record and the car you're insuring).

People with a good driving record who own their cars are better off with a high deductible as the chance of them needing to pay it is very low and therefore they will save some money each year on insurance. The bank does own the car though and they do have a right to make sure their investment is protected.

grime015

I am surprised that banks do not impose mileage penalties for people who put excessive miles/depreciation on their cars. (ex. 20k+ miles per year)

LuvMyTSX

Don't even give them that idea. We already pay for that through insurance rates.

phile

There is. I worked in claims, the majority of the 1K deductible did not have adequate coverage. Sometimes people would call in and ask whether they should report a claim or not

Now this is of course with a new car. Obviously someone with a beater you won't need the huge coverage.

black label

I wouldn't doubt that most people who opt for the $1000 deductible also have inadequate coverage, they are trying to keep the costs as low as possible. What I was saying is that it's not a direct correlation ie just because you have a high deductible doesn't necessarily mean you have low coverage.

I never worked in insurance, but it was part of my job as a car salesman to explain what insurance coverage a customer would need if they were to finance the car and it was my responsibility to acquire an insurance binder from the ins co to show the finance co that there was adequate coverage. If I was unable to provide the proper documents to the finance co, they wouldn't fund the contracts and my company would not be getting paid for the $28K-$53K car we sold.

I do live in MA though and we have some pretty screwed up insurance regs. Pretty much all of the insurance companies who advertise on TV like Geico or Progressive wouldn't write insurance policies in MA. I believe this has changed recently though.

phile

MA was one of the last states Progressive started writing policies in. The laws were so adverse to the insurance companies, no one wanted to go in there.

I worked for their claims for a few years. And left the insurance industry altogether.

And this is why:

http://www.jobvent.com/companyBrowse.php?CompanyID=232

black label

LOL if I didn't know better I'd swear that it was a description of being a car salesman!

Insurance in MA just sucks, apparently it's getting better but it was very annoying to see commercials everyday for insurance companies claiming to save you money, then calling only to find out that they don't write policies in MA. They did change our insurance regs recently and it has opened it up to competitive pricing. My policies are paid through December so I'll be doing some investigation then.

I pay about 3200 a year to insure 2 cars (97 lude & 03 CL-S) and I have a very good driving record.

Cybiker

My coverage is completely adequate or more than adequate, it's just that for the simple fact that I feel the money saved by having a higher deductible will far outweigh having the lower deductible if I happen to be in an accident. The difference in cost monthly is $45. Thats $540 per year. If i even happened to get into an accident once a year, i'm still saving $40, and a yearly accident is highly unlikely because I have yet to be in an accident in my driving career (I am almost 21 y/o) And if I am in an accident whether the deductible is $500 or $1,000 i'll be paying that regardless

black label

The only issue is that it's not your car, it's the finance companies car and you have to follow their rules. You agreed to the finance rate, you agreed to the term, you picked out the car. They just want to make sure that their investment will be protected until you have paid them.

I'll fully agree that it sucks, but the only way around it is to pay cash for your car. Then you can carry as much or as little insurance with whatever deductible as you choose.

What Phile and I are trying to get across is that it isn't just your finance co, this is pretty much an industry standard.

fsttyms1

High deductible does NOT mean low coverage. You can have the max coverage with a higher deductible.

Osamu

I had to lower my deductible from $1000 to $500 when I bought a new car. I really didn't think too much of it, as I don't think my premiums went up too much. My coverage didn't change at all, just my premium.

I guess there was an almost $500/year difference once I bought my new car, but I'm not sure how much of that is because of the lower deductible, and how much of it is that I bought a car worth 4 times as much as my old one.

YeuEmMaiMai

when I got my loan that is one of the things that they verified.......I carry $500 and that was fine....hopefully I will never have to use it............

Cybiker

I've gone over the paperwork for my loan (the contract) and it simply states that I need to have collision and comprehensive coverage or they will take out coverage for me at my own cost, however it does not state a specific amount that the deductible needs to be at. Can I fight this with them? Is it worth it or can they just drop me if they feel like it?