When a vehicle is financed, the lien holder (usually a bank or credit union) is listed on the vehicle's title as having a security interest in the vehicle. This means that the lien holder has a legal right to the vehicle if the borrower defaults on the loan.
As part of their agreement with the lien holder, the borrower is required to maintain insurance on the vehicle. The insurance company is then required to notify the lien holder of any changes in coverage, such as a cancellation or reduction in coverage. This is because a change in coverage could affect the lien holder's interest in the vehicle.
For example, if the insurance company cancels the coverage, the lien holder could be left without any recourse if the vehicle is damaged or stolen. Similarly, if the insurance coverage is reduced, the lien holder could be at risk if the vehicle is damaged or stolen in an amount that exceeds the coverage limits.
To protect the lien holder's interest, many jurisdictions have laws that require insurance companies to notify lien holders of any changes in coverage. These laws vary from state to state, so it is important to check the specific laws in your jurisdiction.
In addition, many insurance companies have their own policies and procedures for notifying lien holders of changes in coverage. These policies may vary from company to company, so it is important to contact your insurance company to ask about their specific procedures.
