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What Is A Lienholder?

Updated: November 2017

A lienholder is a lender that legally owns your property (a car, for example) until you pay it off in full. The lender — which can be a bank, financial institution or private party — holds a lien, or legal claim, on the property because they lent you the money to purchase it.

For example, if you finance a vehicle, the lienholder's name appears on your car's title and your car insurance policy until you pay it off, according to the National Association of Insurance Commissioners (NAIC).

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Lienholders and Car Insurance

Lienholders can require you to purchase certain car insurance coverages to help protect their investment if it's damaged or destroyed.

A lienholder may require that you purchase comprehensive coverage and/or collision coverage on your car insurance policy, says the NAIC. Collision coverage helps pay to repair your car if it’s damaged in a collision with another vehicle or object. Comprehensive coverage helps pay to repair your car if it's damaged by things like fire, theft, falling objects or natural disasters.

Once you’ve paid off your loan, collision coverage and comprehensive coverage are typically optional on your car insurance policy.

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Extra Insurance for a Brand New Car with a Lien

If you're the first owner of a brand-new vehicle, you may be able to buy additional insurance coverage to help protect you against losing money if your vehicle is totaled.

Loan or lease gap coverage is an optional car insurance coverage that helps pay the difference between the depreciated value of your vehicle and what you still owe the lender if your car is totaled in a covered loss.

In short, comprehensive and collision coverages typically pay up to the depreciated value (aka the actual cash value) for a totaled vehicle. But, if the depreciated value is less than what you still owe on your car loan, you may have to finish paying off the lender, with your own money, for a vehicle that's no longer drivable. That's why it's important to think about buying additional coverage, like loan or lease gap coverage, if you're financing a brand-new vehicle.

Liens and Car Titles

When you borrow money for a car, it’s common for your lienholder to keep the title, which is the legal ownership document for your car, explains The lienholder's name may also be printed on the title - as legal reassurance that you can’t sell the car until it’s paid off.

When you fully repay your car loan, the lender can legally sign over the title to you or submit paperwork to your state’s department of motor vehicles (DMV). These steps verify that your lender has officially “released” its lien on your car, explains At that point, the car is fully yours to keep, sell, or insure differently, as you see fit.

For more information about liens and how they may affect your car insurance, talk to a local insurance agent.

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This content is for informational purposes only and may not be applicable to all situations.

Coverage subject to terms, conditions, and availability. Policy issuance is subject to qualifications. Allstate Insurance Company, Allstate Indemnity Company, Allstate Fire and Casualty Insurance Company, Allstate Property and Casualty Insurance Company, Northbrook, IL. © 2018 Allstate Insurance Company, Northbrook, IL.
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