What is CPI Insurance?

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Most people are thrilled when financing companies approve their application to buy or lease a brand-new automobile. However, there are critical aspects of the lease or financing deal you must follow. 

Lienholders demand you get full auto insurance for your new vehicle. If you don’t purchase liability, comprehensive, and collision automobile insurance, the lender may impose a costly insurance policy known as Collateral Protection Insurance (CPI). 

As long as the insurer provides you enough time to purchase your coverage, they can lawfully force you to pay for an overpriced insurance policy as long as you have the lease or loan. 

Key Takeaways:

  • CPI stands for Collateral Protection Insurance and is used to protect the lender’s investment if the borrower does not have sufficient car insurance coverage on their policy. 
  • CPI covers physical damage to your vehicle in the event of an accident.
  • Drivers can avoid CPI by purchasing an auto insurance policy that provides them with enough coverage to protect the lender’s investment. 

What is CPI? 

CPI insurance has multiple names, but the initials stand for Collateral Protection Insurance. It is a policy specifically designed for a car loan company to protect themselves if you don’t carry car insurance on the vehicle. Lenders will take out a CPI insurance policy if you do not have sufficient car insurance coverage. 

How Does CPI Work?

Collateral Protection Insurance provides coverage to lenders if a borrower damages the vehicle and doesn’t have adequate protection. 

Here is an example:

  1. A borrower takes out a car loan and uses their car as collateral to secure the loan.
  2. The borrower does not have sufficient insurance coverage on the car, so the lender requires the borrower to purchase CPI to protect the lender’s interests.
  3. If the borrower defaults damages or destroys the car, the CPI policy will pay the lender an amount equal to the outstanding balance on the loan, up to the policy limits.
  4. The lender uses the proceeds from the CPI policy to pay off the outstanding balance on the loan.

The policyholder pays for CPI as part of their monthly auto loan cost. The terms and conditions of CPI vary by policy and lender, so it is essential to carefully review the details of the policy before agreeing to it.

What Does CPI Cover?

To understand CPI insurance, look at who it benefits. The lender is the policyholder for CPI coverage, which means their goal is to cover their potential losses in the event of an accident or theft. 

If your vehicle is damaged, destroyed, or even outright stolen, the lender gets paid the total value of the vehicle. So whether you get your car loan from a credit union, bank, or another financial institution, the possibility of CPI insurance exists.

How Much Does CPI Cost?

The cost of CPI varies widely depending on several factors, such as vehicle type, car value, the lender’s requirements, and policy terms.

Borrowers do not purchase CPI insurance. Instead, the lender responsible for your car loan will buy it directly. The insurance company selected by the lender calculates the premium based on the total car loan amount. 

The cost of CPI is typically higher than traditional insurance because it covers a specific loan for a shorter time. In addition, they do not factor in your driving history, location, or credit score. 

Get Cheap Auto Insurance to Avoid Inflated CPI Costs

Common Errors With CPI Insurance

Most people search for CPI insurance because the company behind their auto loan has started taking premiums for it. If you don’t have a standard car insurance policy, then the car loan company is simply exercising its rights within the contract you made at the beginning of your loan. 

However, what happens when it’s applied in error?

Here are some common mistakes that may occur with CPI:

  • Insufficient insurance coverage: If you don’t have enough insurance coverage on the car, the lender may require you purchase CPI to protect the lender’s interests. However, once you obtain adequate insurance coverage on the vehicle, the need for the CPI policy dissipates. Your insurer continuing to charge you once you obtain coverage is an issue you’ll have to fix.
  • Duplicate coverage: In some cases, you may already have insurance coverage on the car through your insurance policy. If this is the case, you may be paying for duplicate coverage through their CPI policies.  You will have to reach out to the lender and let them know you have sufficient coverage. 
  • Lack of proper notification: You may not have received notice from the lender that CPI is required, or you might need help understanding the terms and conditions of the policy.
  • Miscommunication between lender and insurance company: There may be a miscommunication between the lender and the insurance company administering the CPI policy, resulting in confusion or mistakes.
  • Misapplication of premiums: There may be errors in calculating or applying premiums, leading to overpayment or underpayment.

To avoid errors with your CPI insurance, review your terms and policy carefully and address any red flags you may find. Or better yet, be sure you don’t need Collateral Protection Insurance by maintaining full coverage protection on your vehicle. 

What Companies Offer CPI Insurance to Lenders?

Several companies offer Collateral Protection Insurance to lenders. These companies may be insurance businesses, banks, or financial services firms.

Here are a few of the most well known options:

  • Assurant
  • CUNA Mutual Group
  • Fidelity National Financial
  • First American Financial Corporation
  • The Hartford Financial Services Group
  • JPMorgan Chase
  • Nationwide
  • Old Republic International Corporation
  • Wells Fargo

Is It Better to Go with CPI Insurance?

Some call CPI insurance force-placed insurance because the lender forces it as per your contractual agreement. CPI insurance tends to cost more than insurance you can get on your own from companies like State Farm, GEICO, Farmers or Progressive. 

It’s important to note that consistently maintaining insurance is essential for both the driver and the lender. The lender wants to ensure their investment is protected while there’s still a loan or lease on the vehicle. Once the monthly payments are over, and the policyholder owns the car outright, comprehensive and collision coverage are no longer necessary.

You can avoid having CPI insurance forced on you by ensuring that you have auto insurance for your vehicle and that the lender has a copy of your insurance declaration page. The lender may refer to this as the insurance binder as well. They’re looking to confirm proof of insurance. 

Lender Requirements for Standard Insurance

Since CPI insurance focuses on covering the cost of physical damage, it makes sense to prove to the lender that you have this coverage on your own. You’ll need comprehensive and collision insurance to do so.  

Remember, you’ll have to pay a deductible before your insurance coverage will kick in. So, whether your deductible is large or small, it’s good practice to have the money set aside in a savings account in case you need it. 

Fortunately for drivers, car financing companies offer low to average deductibles for drivers. For example, many car loan contracts require physical damage coverage with deductibles of $500. 

Although it is cheaper to have auto insurance with higher deductibles, lenders know from experience that the higher a deductible is, the less likely someone will have the money available after an accident. Coming up with $500 to repair your vehicle is a lot easier than paying $2,000 unexpectedly. 

CPI insurance is a necessary part of the insurance ecosystem, as lenders must protect their financial investment by ensuring your vehicle has proper coverage. If you don’t do it on your own you must take on the cost of this more costly policy.

You Deserve Affordable Car Insurance

The right car insurance policy is the one that not only provides the coverage you’re looking for but also meets the requirements set for you in the original loan agreement from the lender. 

Of course, every financial institution has the right to decide their insurance requirements, but you can also shop around for the best rates. We recommend using an online insurance comparison tool to find a policy that meets your needs. 

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CPI Insurance FAQs 

What is CPI Insurance? 

Collateral Protection Insurance (CPI) is auto insurance secured by the lender if the driver doesn’t maintain collision and comprehensive policies on the vehicle. 

What does CPI cover in the event of an accident? 

CPI typically covers the cost of damages done directly to your vehicle. It isn’t a liability plan that pays for damages the other driver incurs.  

How do I show proof of CPI insurance?

To show proof of CPI insurance, you can provide a copy of the policy documents. This policy document should include information about the policy, including the policy limits, the covered collateral, and the policy period. In addition, an insurance company representative signs the policy document and should include the insurance company’s name, policy number, and other identifying information.

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