Cal. Code Regs. Tit. 10, § 1489 - Limitations on Sale of Insurance: Specific Types of Security

(a) Insurance on motor vehicles (including motorcycles, and other vehicles licensed by the Department of Motor Vehicles), mobile homes (registered by the Department of Housing and Community Development), boats and aircraft is subject to the following limitations:

(1) A finance company shall not require or solicit in a manner which may lead a prospective borrower to believe that collision insurance is required when the amount of the annual premium is more than one-third of the principal amount of the loan exclusive of any insurance premium or one-third of the reasonable value of the security for the loan. A finance company may require and sell collision insurance with a $50 or more deductible clause, and fire, theft and/or comprehensive insurance.

(2) A finance company may sell, but not require, property damage, public liability, uninsured motorist, towing and labor, and medical payments insurance provided such insurance has not been disapproved by the commissioner. The sale of such insurance must be supported by a statement, signed by the borrower that the insurance was not a prerequisite to obtaining the loan and that the insurance was purchased at the option of the borrower only.

(3) Insurance for periods of more or less than one year will ordinarily be considered unreasonable, except that the insurance for periods of less than one year will not be considered unreasonable if the premium is a pro-rata portion of the annual premium.

(b) Insurance on household goods, business equipment, and other types of tangible personal property is subject to the following limitations:

(1) A finance company may require and sell fire insurance.

(2) A finance company may sell, but not require, other types of insurance such as theft, flood damage, etc., in compliance with applicable law.

(3) Insurance which exceeds the term of the loan shall not be required or sold, except that a one-year term may be provided for a fractional part of a year.

(c) Insurance on real property is subject to the following limitations:

(1) A finance company may require title insurance and may require and sell fire insurance, and other types of coverage that comply with applicable law and protect against damage to the real property securing the loan. However, before material damage insurance may be sold, documentary proof must be obtained from any and all lenders holding any prior encumbrances or liens that sufficient insurance does not exist. The documents shall be maintained in the borrower's loan file.

(2) A finance company may sell, but not require, homeowner liability insurance provided such insurance complies with applicable law. The sale of such insurance must be supported by a statement, signed by the borrower, to the effect that the insurance was not a prerequisite to obtaining the loan and that the insurance was purchased at the option of the borrower only.

(3) Insurance for periods which extend for more than that which is customarily sold may not be required nor sold. Where the term of the loan is less than this customary period, however, insurance shall not exceed the term of the loan. However, a one-year term may be provided for a fractional part of a year.

Notes

Cal. Code Regs. Tit. 10, § 1489

Note: Authority cited: Section 22150, Financial Code. Reference: Sections 22150,22311, 22312 and 22313, Financial Code.

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).
2. Amendment of subsection (b)(3) filed 6-18-87; operative 7-18-87 (Register 87, No. 25).
3. Change without regulatory effect amending Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).
4. Amendment of subsections (a)-(a)(2), (b)(3) and (c)(1) filed 8-4-98; operative 9-3-98 (Register 98, No. 32).