Watch Your Insurance Deductibles
If your dealership finances vehicles, most dealers require sufficient insurance to protect the property subject to the lien. To accomplish this, most dealers require full / comprehensive coverage. However, while most insurance provisions should require that the dealership be included as the lienholder on the policy, do your contracts stipulate what the deductible on that policy is? Most dealers just assume that the policy will have a $500 deductible, but that is not always the case.
However, we have heard of instances of deductibles higher than that, up to $2500. This could pose a major issue if the salvage or ACV of the vehicle is at or near $3000- $4000. TIADA encourages all dealers to review their insurance provisions to ensure that their equity is properly protected.
To be clear the issue of a higher than $500 deductible is not clearly outlined in the Texas Insurance Code.
We have included the following for your review:
Sec. 348.201. PROPERTY INSURANCE. (a) A holder may request or require a retail buyer to insure the motor vehicle purchased under a retail installment transaction and accessories and related goods subject to the holder's security interest.
(b) The insurance and the premiums or charges for the insurance must bear a reasonable relationship to:
(1) the amount, term, and conditions of the retail installment contract; and
(2) the existing hazards or risk of loss, damage, or destruction.
(c) The insurance may not:
(1) cover unusual or exceptional risks; or
(2) provide coverage not ordinarily included in policies issued to the public.
(d) The holder may include the cost of insurance provided under this section as a separate charge in the contract