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CPI Insurance: What Is Covered and Do I Need It?

Most people are ecstatic when a financing company gives them the green light to buy or lease a brand new vehicle. However, there are some parts of the leasing or financing contract you must fulfill. For instance, most lienholders require you to get full auto insurance for your new vehicle. If you don't sign up for liability, comprehensive and collision car insurance, the lender may impose an expensive insurance coverage called Collateral Protection Insurance (CPI). As long as the insurer gives you ample time to buy your own policy, they can legally make you pay for an over-priced insurance policy as long as you still owe a balance. The only way to get refunded for the heavy cost of being high-risk driver is if the lender made a mistake and you had the agreed-upon coverage. Find out more about what CPI insurance is, how it works and how you can pay the least for the car insurance you are required to have.

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.

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.

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.

Is CPI Insurance Legal?

CPI is lender-placed insurance and is not against the law. As long as the lender gives the borrow a fair amount of warning after requesting proof of insurance, it is well within their legal rights to protect their interests by imposing CPI coverage.

If you have the required insurance coverages stipulated in your leasing or financing contract, bring this fact to your lender's attention. They will have to refund you for their mistake. It is not legal to impose CPI insurance on a borrower who has full coverage car insurance.

How Does the Lender Know if I'm Insured?

Lienholders use insurance tracking programs to ensure policyholders have enough coverage.

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.

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.

Avoid CPI by comparing coverages and rates to find one that is best and most affordable for you.

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.

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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:

  1. Examine your lender's requirements on your auto loan contract to learn what you'll need to do to remove this coverage.

  2. 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)

  3. 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.

  4. Next, review your quotes. Compare coverages and rates to see which car insurance company has the best deal.

  5. Buy an insurance policy.

  6. 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
  • Unitas
  • SWBC
  • WNC Insurance Services

Can I Get a CPI Refund?

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.

CPI Insurance FAQs

Can my lender really make me pay for CPI Insurance?

Yes, it's legal for a lender to impose CPI Insurance, as long as they give you ample warning and a few chances to buy your own policy.

If I buy regular car insurance, can I cancel my CPI insurance?

Yes, if you buy full coverage car insurance and show the lender your proof of insurance, you can continue to make payments on your new car insurance, and your lender will cancel the CPI insurance policy. 

Compare Rates, Avoid CPI Insurance

Why wait until you're caught being underinsured or uninsured? Your lender has the right to insist that you're insured with full-coverage car insurance. Don't wait until your lender forces an expensive car insurance policy on you. Use SmartFinancial's free insurance comparison tool to compare coverages and rates to find one that is most affordable. Just enter your zip code below to get started.

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