CPI Insurance: How Does It Work? What Does It Cover?

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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. You'll pay more for CPI than standard car insurance, and the policy doesn't always offer full 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?

Collateral protection insurance protects the company financing your car if you don't have a car insurance policy that meets their requirements.

Lenders usually require you to have comprehensive and collision insurance that covers the value of your car if you damage it. A CPI policy is your lender's way of fulfilling your insurance requirement if you don't do so.

CPI is also known as force-placed auto insurance, lien protection insurance or auto loan protection insurance.

When you finance or lease a car, your vehicle is used as collateral to secure your loan. If you stop making your monthly payments, your lender can repossess your car and sell it to recoup their losses.

But if you damage or total your car, your lender wouldn't be able to sell it for enough to pay off your loan balance which is why your loan has insurance requirements.

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How does CPI auto insurance work?

Collateral protection insurance (CPI) is purchased by your lender if your auto insurance policy does not meet the requirements outlined in your contract.

  • A CPI auto insurance policy will cover the value of your car. Policies are similar to comprehensive and collision coverage, which pays to repair or replace your car after an accident or if it's damaged or stolen.
  • However, CPI insurance usually won't protect you as the driver. Policies don't have liability coverage to cover costs if you injure someone or damage their property. And they may not meet the minimum insurance requirements of your state, so you could still get a ticket or penalty for being uninsured.

CPI premiums are added directly to your monthly car payment, so you won't receive an additional statement in the mail.

You can avoid paying for CPI by getting a full-coverage auto insurance policy that meets the limits in your purchase or lease contract.

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.

Which companies offer collateral protection insurance?

CPI is purchased by your lender, so you can't choose where it comes from. Some companies that provide collateral protection insurance are:

  • Allied Solutions
  • Breckenridge Insurance Group
  • CUNA Mutual Group
  • Lee & Mason Financial Services
  • State National Companies
  • SWBC

The CPI claims process varies by company. Depending on your situation, a claim may be filed either by you or by the lender.

Check with your lender or CPI insurance company to understand how their claims process works.

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Yes, collateral protection insurance is legal. Your financing or lease agreement requires that you have a certain amount of auto insurance coverage.

If you don't have a car insurance policy, or you 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 if it buys 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?

CPI policies are more expensive than buying your own auto insurance.

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. This is one reason why it generally costs more than buying an auto insurance policy on your own.

CPI rates can be calculated in two ways:

  • Your lender will submit your loan information to your state's department of insurance, and they will set the rate.
  • The insurance company that your lender uses for CPI will calculate the monthly premium.

Most states have a cap on how much you have to pay 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, the CPI policy may be backdated so that you don't have a gap in coverage. This means you could have to pay for coverage for a few months that have already passed.

For example, if you canceled 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, you can cancel it by buying your own coverage.

  1. Review your contract to see how much insurance your lender requires.
  2. 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
  3. Compare insurance quotes online to find the best rate on a policy that meets your lender's requirements.
  4. Provide your lender with proof of insurance for your new policy.

How can I get a CPI refund?

Occasionally, lenders and insurance companies 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 should issue you a CPI refund.

Frequently asked questions

What does CPI mean in insurance?

CPI means collateral protection insurance, which may be added to your car's loan or lease payments if you don't have enough car insurance to meet your financing agreement. A CPI policy is expensive, but you can cancel it by buying your own car insurance policy.

How much does collateral protection insurance cost?

The cost of CPI policies are based on the size of your car loan, and rates are typically expensive. You can cancel CPI insurance by buying a full-coverage car insurance policy, which will give you more coverage for cheaper rates.

Why was CPI insurance added to my car loan?

Collateral protection insurance is added to your loan if you don't have enough car insurance to meet your lender's requirements. Your policy could be missing comprehensive and collision coverage, or your insurance could have lapsed or been canceled. The loan company will add CPI insurance to your bill until you can show proof of your own insurance policy.

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