CPI Insurance: A Comprehensive Guide

Carrying an auto loan means that you have to comply with the requirement of having an insurance coverage for your vehicle. This is where Collateral Protection Insurance (CPI) comes into play. CPI insurance is designed to protect the lender’s interests in case the borrower defaults on their auto loan, and the vehicle is either stolen, damaged or totally destroyed.

What is CPI Insurance?

CPI insurance, also known as force-placed insurance, is an insurance policy that your lender may take out on your behalf to protect their interest in case your vehicle is damaged, stolen or destroyed, and you have no or inadequate insurance coverage. It is a type of insurance that is put in place by the lender to protect their assets from being damaged or destroyed, which would result in a loss for them.

Usually, lenders require that borrowers carry comprehensive and collision insurance. However, if the borrower fails to maintain insurance coverage, the lender may purchase a CPI insurance policy to cover their losses. CPI insurance coverage can cost significantly more than regular auto insurance policies.

How Does CPI Insurance Work?

CPI insurance will only come into play if you fail to maintain the required auto insurance coverage on your vehicle. In such a scenario, the lender will typically reach out to you to obtain proof of insurance. If you are unable to provide proof of insurance, the lender may then purchase a CPI policy on your behalf.

The cost of the CPI policy will be added to your outstanding loan balance, which will increase your monthly payments. CPI insurance will only cover the lender’s interest and not the borrower’s interest. Therefore, it won’t help you pay for damage to your vehicle or injuries you might suffer in an accident.

What Does CPI Insurance Cover?

CPI insurance provides coverage for lenders in case the borrower defaults on their auto loan and the vehicle is either stolen, damaged or totally destroyed. It covers the difference between the loan balance and the actual cash value of the vehicle. CPI insurance is typically designed to cover the lender’s interest in the vehicle, and not the borrower’s interest.

Is CPI Insurance Necessary?

CPI insurance is not necessary if you maintain the required insurance coverage on your vehicle. However, if you fail to maintain insurance coverage or if your lender believes that your insurance coverage is inadequate, then they may purchase a CPI policy to protect their interests.

It is important to note that if a CPI policy is added to your loan balance, it can increase your monthly payments, making your loan more expensive. Therefore, it is crucial to always maintain the required insurance coverage on your vehicle to avoid unnecessary expenses.

How Much Does CPI Insurance Cost?

The cost of CPI insurance can vary depending on several factors such as the value of the vehicle, the coverage amount, and the lender’s requirements. Typically, CPI insurance costs more than traditional auto insurance policies because it covers a higher risk.

CPI insurance premiums are usually paid monthly and are added to the borrower’s outstanding loan balance, which can increase the amount of the loan and the borrower’s monthly payments.

FAQs

1. What happens if I don’t have insurance on my car?

If you do not have insurance on your car, your lender may purchase CPI insurance on your behalf to protect their interests. CPI insurance can be expensive, and the cost will be added to your outstanding loan balance, which will increase your monthly payments.

2. Can I cancel CPI insurance?

You can cancel your CPI insurance if you provide proof of insurance to your lender that meets their requirements. However, if you are unable to provide proof of insurance, CPI insurance may be required by your lender to protect their interests.

3. Do I still need CPI insurance if I have gap insurance?

If you have Gap insurance, it may cover the difference between the loan balance and the actual cash value of the vehicle if it is stolen or totaled. However, your lender may still require you to carry CPI insurance to protect their interests.

4. Can CPI insurance be included in my monthly payments?

Yes, CPI insurance premiums are usually paid monthly and are added to the borrower’s outstanding loan balance, which can increase the amount of the loan and the borrower’s monthly payments.

5. Can I avoid CPI insurance?

You can avoid CPI insurance by maintaining the required insurance coverage on your vehicle. Make sure to review your auto insurance policy regularly and make necessary updates to ensure that you maintain proper coverage and avoid unnecessary expenses.

Conclusion

CPI insurance is a type of insurance policy that your lender may take out on your behalf to protect their interests in case your vehicle is damaged, stolen, or destroyed, and you have no or inadequate insurance coverage. It is important to maintain the required auto insurance coverage on your vehicle to avoid the need for CPI insurance, which can be expensive and increase your monthly payments.

Remember, CPI insurance only covers the lender’s interest in the vehicle, not the borrower’s interest. Therefore, it is essential to maintain proper insurance coverage to protect your interests and avoid unnecessary expenses. Always review your auto insurance policy, ensure that you have adequate coverage and make updates as necessary to protect your assets and avoid the need for CPI insurance.