What Is Vendor’s Single Interest (VSI) Insurance and How Does It Work?

Vendor’s Single Interest (VSI) insurance, also known as Blanket VSI, is a specialized collateral protection policy that safeguards a lender’s financial interest in collateral when a borrower fails to maintain adequate insurance coverage. The policy is designed to provide automatic coverage over a lender’s consumer loan portfolio, which may include autos, vans, light trucks, motorcycles, RVs, watercraft, mobile homes, and heavy trucks, with the option to add additional collateral types.

Instead of tracking insurance policies throughout the life of each loan, lenders can rely on a Vendor's Single Interest policy to automatically protect their portfolio. Under the policy, lenders are required to verify evidence of insurance at loan closing, but they are not required to track the policy afterward. If a vehicle or other eligible collateral is repossessed, uninsured, and damaged, the lender can file a claim under the policy — with repossession triggering a claim event.

What is the cost of Vendor's Single Interest?

The premium of a Vendor's Single Interest policy can be applied as a one-time, per new loan charge or a monthly charge based on the outstanding balance of the loan portfolio. In many states, the per new loan charge may be passed onto the borrower at time of loan closing. 

What types of coverage does a Vendor's Single Interest policy provide?

• Physical Damage & Theft Protection:

  • Provides blanket all-risk coverage for damage or theft prior to repossession up to the policy limits.

• Skip and Confiscation Protection:

  • Covers losses caused by the inability to locate a borrower or obtain collateral seized by a public official.

• Modified Actual Cash Value:

  • Pays the difference between the actual cash value (ACV) of a vehicle and the principal loan balance in the event of a total loss.

• Non-Filing (Errors & Omissions):

  • Covers losses caused by improperly filed liens or unfiled liens on covered collateral.

• Repossession Physical Damage:

  • Covers physical damage losses sustained within a specific timeframe after repossession of the collateral.

Vendor's Single Interest (VSI) vs. Collateral Protection Insurance (CPI)

While both Vendor's Single Interest (VSI) and Collateral Protection Insurance (CPI) help mitigate the risks of uninsured collateral, their processes differ significantly:

While the above-mentioned differences in loan servicing may not appear significant at first glance, the impact on a lender's operations and its borrowers can be substantial. By eliminating the need to track insurance after loan closing, lenders can effectively and efficiently safeguard their financial interest without the burden of a traditional CPI tracking program.

What are the Benefits of a Vendor's Single Interest policy?

1. Automatic Portfolio Coverage

   VSI coverage automatically applies to eligible loans in the lender's portfolio, eliminating the need for continuous insurance tracking and verification after loan closing.

2. Streamlined Loan Servicing

   No need for tracking insurance and force-placing CPI coverage-simplifying loan servicing operations, freeing your team to focus on growth.

3. Cost-Effective Risk Management

   The cost of a Vendor's Single Interest program is typically less expensive than CPI and eliminates administrative costs associated with tracking insurance policies, sending warning notifications and handling customer services issues related to force-placements. 

4. Supports Compliance Efforts

   Lenders still verify coverage at loan closing, which helps meet regulatory expectations while simplifying workflows.

5. Safeguards Lender Financial Interests

   If a borrower fails to maintain coverage, the Vendor's Single Interest policy automatically protects the lender’s financial interest in the collateral.

6. Improves Borrower Experience

   Without CPI charges or forced coverage, the borrower experience remains smooth—reducing friction, complaints and reputational risk.

Final Thoughts

In a complex regulatory environment, a Vendor's Single Interest policy provides a smart, simplified approach to managing risk. It’s an efficient solution that protects a lenders consumer loan portfolio, supports compliance, and frees loan servicing operations from the burden of insurance tracking, sending warning notifications and force-placing coverage.

Click the button below to learn how a VSI policy can streamline your risk management.