Which statement about mortgaged vehicles is true?

Which statement about mortgaged vehicles is true?

• A. Must be insured for 100% value
• B. Only insured for loan amount
• C. Insurance is not required
• D. Only liability coverage

Answer: (A)

When a vehicle is financed, the lender has a security interest in the car, so the policy must protect the full value of the collateral. Insuring the vehicle for 100% of its value ensures that, in a total loss, the payout is enough to pay off the loan and still cover the car’s replacement. If insurance were limited to the loan amount or relied on liability coverage alone, there could be a gap between the car’s value and the policy payout, leaving the borrower responsible for the shortfall and not adequately safeguarding the lender’s interest. So the statement that mortgaged vehicles must be insured for full value reflects the need to protect both the loan and the asset.

When a vehicle is financed, the lender has a security interest in the car, so the policy must protect the full value of the collateral. Insuring the vehicle for 100% of its value ensures that, in a total loss, the payout is enough to pay off the loan and still cover the car’s replacement. If insurance were limited to the loan amount or relied on liability coverage alone, there could be a gap between the car’s value and the policy payout, leaving the borrower responsible for the shortfall and not adequately safeguarding the lender’s interest. So the statement that mortgaged vehicles must be insured for full value reflects the need to protect both the loan and the asset.