Collateral protection insurance — or CPI — is a type of car insurance purchased by your lender to protect your vehicle if you don't have the required amount of insurance coverage. CPI is more expensive than standard car insurance, and the policy doesn't always offer full auto insurance coverage.
Removing collateral protection insurance is not difficult — once you have an auto insurance policy that meets the requirements of your contract, send proof of insurance to your lender and they will cancel your CPI policy.
What is collateral protection insurance?
When you finance or lease a car, your vehicle is used as collateral to secure your loan. Your car acts as a form of protection for your lender — if you default on your payments, your lender can repossess your car and sell it to recoup their losses.
If you were to total your car, your lender wouldn't be able to sell it for enough to cover your loan balance. That's why your loan agreement requires you to maintain certain auto insurance limits. Usually, lenders require you to maintain a comprehensive and collision insurance policy. A CPI policy is your lender's way of fulfilling your insurance requirement if your insurance policy is cancelled.
CPI is also known as force-placed auto insurance, lien protection insurance and auto loan protection insurance.
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How does force-placed auto insurance work?
Force-placed auto insurance, or collateral protection insurance, is purchased by your lender when your auto insurance policy does not meet the requirements outlined in your contract. CPI provides the insurance that you need to satisfy your agreement and protects your lender by insuring your car against physical damage.
The policy also protects you as the driver. If you were to get into an accident without the proper car insurance in place, you could be responsible for paying for damage to the vehicle.
A CPI auto insurance policy will make sure that you're meeting the requirements set by your lender. Many times, the policy won't protect you as the driver. Lenders can purchase CPI policies that provide comprehensive and collision coverage to protect their investment and cover physical damage to the driver’s car. When you purchase full-coverage auto insurance, you have the option of including liability and medical coverage, which are important to protect you, your passengers and other parties in an accident.
You can avoid paying for CPI by maintaining an auto insurance policy that meets the limits outlined in your purchase or lease contract.
CPI premiums are added directly to your monthly car payment, so you won't receive an additional statement in the mail. If you have already been charged for CPI, removing it is a straightforward process. Once you purchase an auto insurance policy with enough coverage, provide proof of insurance to your lender, and they will cancel your CPI policy.
What companies offer collateral protection insurance?
CPI is purchased by your lender, so you can't choose where it comes from. These are some of companies that provide collateral protection insurance:
- Allied Solutions
- Breckenridge Insurance Group
- CUNA Mutual Group
- Lee and Mason Financial Services, Inc.
- State National Companies
- WNC Insurance Services
The CPI claims process differs between lenders and insurers. Sometimes the borrower can file a claim directly. Other times, your lender will handle the process. Before you get in an accident and need to file a car insurance claim, we recommend that you get in touch with your lender or CPI insurance company to understand how their claims process works.
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Is CPI insurance legal?
Yes, collateral protection insurance is legal. Your financing or What Insurance Do You Need For a Leased Car? outlines the type and amount of auto insurance coverage that you're required to have.
If you don't obtain a car insurance policy, or let your policy lapse, you're violating your contract with your lender. Once they find out that you don't have the proper insurance, they will put a CPI policy in place to enforce the requirements of the contract.
If you choose not to pay the collateral protection insurance premiums, your car can be repossessed.
As the buyer, you also have rights when it comes to CPI insurance. Your lender is required to notify you regarding the purchase of a collateral protection insurance policy. Most states require lenders to contact you within a set number of days if they have purchased or will purchase CPI coverage on your behalf.
What does collateral protection insurance cost?
It can be hard to determine what CPI will cost, but it is more expensive than purchasing your own auto insurance policy.
Your CPI premium is usually calculated based on the total amount of your car loan. Your personal information, credit score and driving history aren't used to determine the price, which is one reason why it generally costs more than buying an auto insurance policy on your own.
There are a few ways that your CPI cost can be calculated:
- Your lender will submit your loan information to your state's department or division of insurance, and they will set the premium.
- The insurance company that your lender uses for CPI will calculate the premium.
Regardless of how your premium is calculated, most states enforce a maximum cost for collateral protection insurance based on the amount of your loan. Sometimes your lender may not find out about your lack of auto insurance right away. In that case, you may have to back pay your CPI premiums so that you don't have a gap in coverage.
For example, if you cancelled your insurance policy four months ago and your new CPI policy costs $250 a month, you would need to pay $1,000 to make up for the four months that you were uninsured.
How can I get rid of CPI auto insurance?
Collateral protection insurance is expensive, but having it removed is not difficult. If you receive a notice from your lender that they're purchasing a CPI policy for you, here are the steps that you can take to have it cancelled:
- Review your contract for details on your lenders requirements.
- Gather the information you need to get an auto insurance quote:
- Personal information: Full name, age, address and driver's license number
- Vehicle information: Make and model, vehicle information number (VIN), date of purchase, mileage
- Driving history: Ticket and accident history, license suspensions
- Compare quotes online to find the best rate.
- Provide your lender with proof of insurance from your new policy
How can I get a CPI refund?
Occasionally, lenders and insurance companies can make mistakes when verifying your insurance. If your lender purchased a CPI policy while you had the correct amount of coverage in place and you paid the premium, you can request a refund. Simply provide them with proof that you were insured during the required period, and they will issue a CPI refund.