CPI Insurance: How Does It Work? What Does It Cover?
Most people are ecstatic when a financing company gives them the green light to buy or lease a brand new vehicle. However, most lienholders require you to get full auto insurance for your new vehicle. If you don't sign up for a policy, they may require you to get an insurance coverage called Collateral Protection Insurance.
What Is Collateral Protection Insurance (CPI)?
Collateral protection insurance (CPI) is a lender-placed insurance coverage. The insurance industry also refers to CPI as force-placed auto insurance, auto loan protection coverage and lien protection insurance. Lienholders require CPI when a person who has financed or leased their vehicle hasn't insured it properly.
When you finance or lease a new car, your lender uses your vehicle as collateral to secure your loan. This asset protects your lender if you fail to pay your lease or loan payments. If you default on your insurance requirements or monthly loan payment, the lienholder can repossess your vehicle then resell it to recover their losses.
If you've financed your car, your lienholder will mandate you to buy an auto insurance policy. Under your loan agreement, your lienholder will require you to get comprehensive and collision insurance with adequate coverage limits.
This insurance policy not only protects the lienholder's assets if you totaled or damaged your vehicle in an accident. Insurance settlements can help lienholders recover the loan's outstanding balance, should you default.
How Does the Lender Know if I'm Insured?
Lienholders use insurance tracking programs to ensure policyholders have enough coverage. When you don't have insurance on your new vehicle, the financial institution will force their own insurance coverage while the borrower makes loan payments.
What Does Collateral Protection Insurance Cover?
A CPI policy is designed to protect your financing company's interests, not drivers. CPI has the following options:
Collision coverage – This auto insurance coverage protects your vehicle from damages after it collides with another car or fixed object, such as a light pole, sign, wall or railing.
Comprehensive coverage – This type of insurance protects cars from non-collision events. It includes theft, animal impacts, weather-related issues, falling objects and vandalism.
Some CPI policies also include liability coverage that pays for another driver's damages in an accident you caused. Others provide medical expenses, depending on the CPI provider, but this is rare. Usually, these policies don't protect drivers.
Do I Need Collateral Protection Insurance?
Most drivers don't need to buy Collateral Protection Insurance for their vehicles. You can avoid CPI coverage as long as you provide proof of auto insurance to your lienholder by the contract's deadline. When the lender validates your documents, it won't require CPI coverage for your vehicle.
The lienholder will only require CPI coverage when it can't validate your insurance documentation or your insurer has canceled your policy. You'll have to pay for CPI coverage, too. Most insurance companies add it to your monthly car insurance payment. As a result, you won't receive a billing statement from a carrier.
How Much Does Collateral Protection Insurance Cost?
CPI is expensive coverage that costs more than a standard insurance policy and should be avoided. Your lender will call you before they add CPI coverage. They can't add this high-risk insurance unless it complies with the requirements in your loan agreement. In short, with CPI, your lender will ensure you meet the requirements for comprehensive and collision coverages.
Your lienholder will calculate your CPI cost based on your car loan's total amount, without adjusting rates based on factors such as your driving history, location or credit score. It is one of the reasons CPI coverage is costlier.
Most states impose a maximum cost for CPI insurance based on your loan's amount. A lending institution may calculate CPI/force-placed insurance using one of two methods:
A lender submits your loan information to your state's division of insurance. These regulators calculate your premium rate.
Your lender contacts the insurance company to calculate your premium rate.
Additionally, some companies may require you to retroactively pay back CPI premiums to avoid coverage gaps.
CPI deductibles are kept at $500.
How Can I Get Rid of CPI Insurance?
Have you recently received a notice from a lender telling you that they're buying CPI coverage for your vehicle? You can remove this coverage and cancel it by following these steps:
Examine your lender's requirements on your auto loan contract to learn what you'll need to do to remove this coverage.
Gather your information and ask the right questions before getting an auto insurance quote. The information you'll need includes:
Your zip code
Your vehicle's make, model and year
Personal information (age, driver's license number, full name, address)
Driving record (accident history, tickets, license suspensions)
Obtain a free quote using an insurance comparison tool like SmartFinancial. These tools help you save money since you buy coverage directly from the car insurance company.
Next, review your quotes. Compare coverages and rates to see which car insurance company has the best deal.
Buy an insurance policy.
After you receive documentation from the insurance company, provide this proof to your lender.
Which Car Insurance Companies Sell Collateral Protection Insurance?
Several auto insurance companies offer forced car insurance/collateral protection insurance to customers.
- Allied Solutions
- Breckenridge Insurance Group
- CUNA Mutual Group
- Lee and Mason Financial Services, Inc.
- State National Companies
- WNC Insurance Services
Can You Receive a Refund on CPI Coverage?
Some lenders will issue refunds if they made a mistake when validating your auto insurance policy. If a lender purchased a CPI policy when you have enough coverage, you can ask for a refund. You will have to submit adequate proof and the required documentation, and the lender will issue a refund for the period.
Compare Rates, Avoid CPI Insurance
Use SmartFinancial's free insurance comparison tool to compare coverages and rates to find one that is best and most affordable for you. Just enter your zip code below to get started.
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