Collateral Protection Insurance
Collateral Protection Insurance, also known as CPI or Creditor Placed Insurance, is intended to protect a lenders’ financial interest in uninsured vehicle collateral. It is a vital program of any sized lender looking to mitigate the inherent risk of auto lending.
In the event a borrower’s auto policy expires, is cancelled, or deemed insufficient, CPI is designed to protect the lender’s interest if the uninsured collateral becomes damaged or totaled. With access to an online system, lenders can instantly force-place coverage to protect their interest when it becomes known the collateral is uninsured.
Lenders will typically force-place coverage in the amount of the outstanding loan balance. The premium is charged on a monthly or annual basis in which the lender may add it to the borrower’s loan payment or outstanding balance. Before a premium is charged to the borrower, the lender may send out warning letters to the borrower giving them a chance to provide evidence of insurance. The warning letters are available for the lender to access through the online system.
Collateral Protection Insurance not only protects the lender’s financial interest in the collateral but allows the borrower to file a claim if the collateral becomes damaged. This allows the borrower to get the collateral repaired and back on the road without facing repossession.
In conclusion, Collateral Protection Insurance is a dual-interest program providing coverage for both the lender and the borrower. The program allows the lender to instantly place coverage on collateral when it becomes uninsured. Any lender looking to alleviate risk and reduce charge-offs should consider a Collateral Protection Insurance program.
Benefits of Collateral Protection Insurance:
- Coverage for Autos, Watercraft, Recreational & Commercial Vehicles.
- Monthly or Annual premium billing available.
- All-Risk Physical Damage coverage.
- Repossession is not required by the lender to file a claim.
- Standard policy limit of $100,000 (higher limits available).
- Policies are issued for a 12-month term.
- Cancellation refunds are calculated using the Pro-rated method.