What Does Loss Payee Mean on an Auto Insurance Policy?

By Contributing Writer

  • Overview

    What Does Loss Payee Mean on an Auto Insurance Policy?
    Anyone who has financed a car and taken out insurance on the vehicle has had to add a loss payee to the auto policy. In the simplest terms, a loss payee is the one who the insurer will pay in the event of a claim.
  • Identification

    A loss payee is the bank or other finance company that issues your car loan and holds title to your vehicle. At the time that the loan is issued, the lender will require you to take out an auto insurance policy, and to add them onto the policy as a loss payee. They also receive a copy of the auto policy when it is issued and every time it is renewed.
  • Insurable Interest

    The lender has what is referred to as an "insurable interest." This simply means that just like you, the company has a vested financial interest in the vehicle: if it is damaged or stolen, they stand to lose just as much as you do. For this reason, it is just as much in their interest to have the vehicle insured, to ensure that the car loan will be paid off even in the event of an accident or theft. Once the car loan is paid off and title transferred to you, the loss payee will be removed from your policy.


  • Loss Payee Clause

    At the time that the loan is issued, a loss payee clause is written into the insurance contract. This clause names the lender as a loss payee on the policy and defines their rights in the event of a claim. In effect, it requires that insurance company permission to pay your lender directly in the event of a claim.
  • Claims

    If you are involved in an accident in which the vehicle is significantly damaged, the loss payee must sign off on the claim check that is issued by the insurance company. This check is typically issued after the repairs have been completed. Once the lender signs the check, you can pay the body shop for the repairs.
  • Totaled

    In the event that the vehicle is totaled, your insurance company will issue a payment equivalent to the vehicle's current market value. A claim check will be sent to the loss payee. If you owe more than the car is worth, then a check for the entire claim payment will be sent to the loss payee. If you owe less than the car's market value, a check covering the balance on your loan will be sent to your finance company, and remaining amount will be sent to you.
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