Your monthly car insurance loan payment may have increased. This could be due to collateral insurance being added to your monthly payment. What is collateral insurance?
It is basically the type of insurance that you get when you finance a car. Your lender will usually choose it for you. Your lender can purchase collateral car insurance for you if you fail to show proof of coverage. These additional costs will be added to your monthly car payment.
What is collateral insurance?
Collateral protection insurance (CPI), which protects your vehicle against damage, is car insurance. Your lender will choose it and add it to your loan payments if you don’t insure or properly insure your car.
Your lender will require you to make monthly payments and purchase the correct amount of insurance when you finance a car. The lender technically owns the vehicle and has a right to ensure that it is financially protected. If the vehicle is in an accident and it becomes uninhabitable, you and the lender will be financially affected.
A CPI premium has one major drawback. It is usually non-negotiable. You can usually get lower rates if your policy is purchased on your own. The amount of coverage that you receive with a lender-selected insurance policy will be restricted to the amount in your loan agreement. You will need to create your own policy in order to select the coverages and limits you require.
What is collateral insurance?
Collateral insurance covers any damage to your car. It typically includes collision or comprehensive. Depending on what package your lender buys for you, it might also include medical expenses and liability. Collateral protection insurance covers you against:
- Theft — Comprehensive coverage covers the cost of any repair or replacement if someone takes your car’s radio, including its radio. Your car is also covered for any damage caused by someone breaking in to it. This coverage does not cover items stolen from your car, such as your phone, wallet, purse, and wallet.
- Vandalism — Comprehensive coverage will cover the cost of your vehicle’s repair or replacement, subject to policy limits. Comprehensive coverage covers all events, including smashed windows, slashed tire, and broken side mirrors.
- Fires — An accident can cause damage to your vehicle’s appearance and function. Comprehensive coverage offers financial protection up to the policy limit for both.
- Falling objects — Although it is unlikely that your car will be damaged from a tree or limb falling on it, other things could happen. Comprehensive covers you against any object that might fall onto your vehicle, such as lamp posts, AC units, or other objects.
- Animals (such a striking a deer). Comprehensive coverage will cover your car’s repair costs if a rodent like a mouse, rat or mouse chews on its wiring. Comprehensive coverage will even cover damage to your vehicle if you run into a deer.
- Comprehensive coverage covers weather events like hail, lightning and flood damage. These types of damage, however, are not covered if your vehicle is damaged by water from a leaking pipe or roof (in your garage).
- Collision with another car — This coverage is the most common. Collision coverage covers any damage your car sustains while being driven, regardless of whether you are at fault. It doesn’t cover damage to another person’s vehicle.
- Collision with fixed objects — Your collision coverage will cover the damage if you run over or back into a parked vehicle. However, it will not pay for repairs to the object that you hit. You would need liability insurance to cover that.
Collateral insurance vs. force-placed coverage
Because they do the same thing, and both are implemented simultaneously, forced-placed insurance can be considered synonymous with collateral protection. You can have either force-placed car insurance or home insurance. However, collateral protection cannot be added to your vehicle. Collateral protection is a type force-placed insurance that can only be added to automobiles.
Collateral protection refunds
Rarely, lenders will make mistakes and require borrowers purchase CPI that is not required. There are options to reverse the situation if you were forced to buy CPI. Most cases can be resolved by sending your lender a copy or your proof of insurance. If none of these options work, your lender may need to be connected with an agent from your insurer. After your lender has received the required paperwork, CPI payments should cease.
CPI may have been added to your loan payment for days that you weren’t properly insured. This applies even if you later set up your own policy and no longer require collateral protection from the lender. CPI will not be refunded if you are charged CPI for days you didn’t have your policy. In this case, you are technically “back-paying” for insurance. No matter what your financial situation may be, it is important to contact your lender to discuss your policy and to avoid unnecessary extra costs.
Most Frequently Asked Questions
What is CPI?
If you have collateral protection insurance, you don’t need it. Your lender could add CPI to your monthly car payments if you don’t have it.
How can I avoid CPI
CPI can be avoided by having proper insurance before leaving the dealership and by not allowing coverage to lapse thereafter.
You will need documentation from your lender to prove that you have the coverages required in your policy. As a declaration page, insurance cards should show the insured dates (both end and start of term),
Which insurance policy is best to avoid CPI?
There are many top-rated car insurance companies available, each offering its own coverage, discount options and method of calculating rates. The best car insurers will vary depending on your situation, coverage requirements, and preferred level of service. It is usually better to have your own policy than to purchase collateral protection insurance.