Understanding Cpi Auto Insurance: What You Need To Know

Collateral Protection Insurance (CPI) is a type of insurance that protects auto loan lenders in the event that a borrower fails to secure auto insurance coverage. In other words, it's financial protection for the car loan provider in case the borrower says they purchased insurance but didn't or has lapses in coverage. It covers the amount of the car loan and any interest accrued. It is purchased by the lender if the borrower's auto insurance policy does not meet the requirements outlined in their contract.

CPI is more expensive than standard car insurance

Collateral Protection Insurance (CPI) is a type of insurance that lenders use to protect a car that a customer is leasing or paying off. It is purchased by the lender when the customer's auto insurance policy does not meet the requirements outlined in their contract.

Additionally, CPI policies may not offer full coverage. They are similar to comprehensive and collision coverage, which pays to repair or replace a car after an accident or if it is damaged or stolen. However, CPI usually does not protect the driver. It often lacks liability coverage, which means that the driver may be personally responsible for the costs if they injure someone or damage someone's property.

CPI rates can be calculated in two ways: by the lender submitting loan information to the state's department of insurance, or by the insurance company used by the lender calculating the monthly premium. Most states have a cap on how much can be charged for CPI based on the loan amount.

While CPI provides protection for the lender and some benefits for the customer, it is generally recommended that drivers carry their own insurance as it is more cost-effective and provides more comprehensive coverage.

It's purchased by your lender to protect their interests

Collateral Protection Insurance (CPI) is a type of car insurance purchased by lenders to protect their interests in the event that a borrower fails to secure auto insurance coverage or has inadequate insurance. It is enacted when a borrower fails to show proof of the necessary auto insurance coverage, which is usually comprehensive or collision auto insurance.

When a borrower takes out a loan to purchase a car, the vehicle is used as collateral to secure the loan. This means that if the borrower stops making their monthly payments, the lender can repossess the car and sell it to recoup their losses. However, if the borrower damages or totals the car, the lender may not be able to sell it for enough to cover the remaining loan balance.

To protect their interests in such cases, lenders require borrowers to have comprehensive and collision insurance that covers the value of the car if it is damaged. If the borrower fails to secure this insurance or lets their policy lapse, the lender will purchase CPI and pass the cost of the policy to the borrower. The CPI policy will cover the value of the car, but it will not provide liability coverage for the driver. It is important to note that CPI is generally more expensive than standard car insurance and does not always offer full coverage.

While CPI protects the lender's financial interests, it does not provide benefits to the borrower in the event of a claim. Therefore, it is in the borrower's best interest to purchase proper auto insurance coverage and maintain it to avoid dealing with CPI.

It doesn't offer full coverage

Collateral Protection Insurance (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. It is designed to protect auto lenders and is enacted when a borrower fails to show adequate proof of the necessary auto insurance coverage.

While CPI covers the value of your car, it does not always offer full coverage. This is because it usually won't protect you as the driver. CPI policies typically lack liability coverage, which means they won't cover costs if you injure someone or damage their property. This also means that they may not meet the minimum insurance requirements of your state, leaving you vulnerable to penalties for being uninsured.

As CPI is purchased by your lender, you have no choice over the type of coverage, which can increase costs. CPI is generally much more expensive than purchasing an auto insurance policy on your own. This is partly because borrowers who fail to secure their own coverage are viewed as high-risk by auto insurance companies, who then charge higher premiums for CPI coverage.

Furthermore, if you choose not to pay your CPI premiums, your car can be repossessed, negatively affecting your credit report for years. Therefore, it is important to note that CPI is designed to benefit the lender, not the borrower.

It's easy to remove CPI

Collateral Protection Insurance (CPI) is a type of insurance that auto lenders use to protect their financial interests. It is enacted when a borrower fails to show proof of the necessary auto insurance coverage. CPI is expensive and will cost more than purchasing an auto insurance policy independently.

If you have been charged for CPI, removing it is a simple process. Here are the steps to remove CPI:

Review your contract

Check your auto loan contract to understand the coverage requirements. Lenders usually require borrowers to have collision or comprehensive auto insurance coverage.

Gather your information

To get an auto insurance quote, you will need to provide certain information, including your personal details (such as your full name, age, address, and driver's license number), vehicle information (make, model, vehicle information number, etc.), and driving history (ticket and accident history, license suspensions, etc.).

Compare insurance quotes

Shop around and compare insurance quotes online to find the best rate on a policy that meets your lender's requirements. You can use an insurance comparison tool to help you save money and find the most affordable option.

Buy an insurance policy

Purchase an auto insurance policy that meets all the coverage requirements stated in your auto loan contract.

Provide proof of insurance to your lender

Once you have purchased the appropriate insurance policy, send the proof of coverage to your lender. They will then cancel the CPI policy.

It is important to note that if your lender made a mistake and purchased CPI when you already had the required coverage, you can request a refund. You will need to provide proof that you had the appropriate insurance during the period in question.

It's legal

Collateral Protection Insurance (CPI) is a type of car insurance that is legal. It is purchased by a lender to protect their investment in the event that the borrower does not have the required amount of insurance coverage.

When an individual takes out an auto loan, they agree to certain stipulations, including making timely loan payments and insuring the vehicle adequately. If the borrower fails to meet these requirements, the lender has the right to impose CPI to protect their interests.

CPI is not against the law because it is part of the auto loan agreement. As long as the lender gives the borrower adequate warning and requests proof of insurance, they are within their legal rights to impose CPI coverage. The lender has a vested interest in the vehicle until the loan is paid off in full, and CPI ensures that their investment is protected.

It is important to note that CPI is more expensive than standard car insurance and should be avoided if possible. Borrowers can do this by ensuring they have the required insurance coverage stipulated in their leasing or financing contract. If a lender imposes CPI on a borrower who has full coverage car insurance, they are required to refund the borrower for the cost of the CPI.

Frequently asked questions