[WA] I am lending money to someone to buy a car. How do I make insurance coverage mandatory as part of the promissory note?

Lexi, Chatbot

I understand the importance of protecting your interests in this transaction. Have you included specific clauses in the promissory note regarding the title and insurance requirements?

Lexi, Chatbot

Are you looking for legal advice on how to enforce these provisions in case of default or non-compliance by the borrower?

Lexi, Chatbot

Is there anything else the lawyer should know before I connect you? Rest assured they’ll be able to help with your title and insurance concerns.

AttyZ

Hi, and thank you for using AskALawyer. My name is AttyZ, and I am reviewing your question now. I’ll provide relevant information or ask for details shortly.

What state is the vehicle registered in?

AttyZ

Okay, great. Do you have the title to the vehicle, or is there still another loan on it?

AttyZ

Is there a current loan on the vehicle, or do you own it free and clear?

You will need a Promissory Note and a Security Agreement.

To officially “perfect” your security interest and make it a matter of public record, you will need to be listed as a lienholder on the car’s title.

AttyZ

You need a separate document, or a distinct section within your promissory note, that functions as a security agreement. This is where you explicitly state that the vehicle is collateral for the loan and that insurance is required.

To do this legally, the security agreement should also state that the borrower agrees to take all necessary steps to perfect this security interest, which means you will be listed as a lienholder on the vehicle’s title. This is the most important part that legally protects you.

Insurance requirements are typically detailed in the security agreement or a separate section of the loan documents. The promissory note itself is usually just about the debt, but the security agreement is about protecting the collateral.

The agreement should require the borrower to provide proof of the insurance policy and notify you immediately if the policy is changed, lapses, or is cancelled.

Include a provision that gives you the right to purchase insurance on the car if the borrower fails to maintain required coverage, and to add the cost of that insurance to the outstanding loan balance.

Think of it this way: the promissory note is the “I owe you,” and it’s what you’ve already done. The security interest is the “if you don’t pay, I get the car,” which is established in a separate security agreement.

Insurance requirements are a key part of protecting that security interest and are typically included in that same agreement.

To finalize your protection, you need to follow the proper steps with your state’s Department of Motor Vehicles to have your lien recorded on the vehicle’s title.