CPI insurance explained: What Is CPI Insurance and How Does It Work?

Last modified: April 17, 2022

When taking out a loan with a lender, you may have noticed information related to CPI insurance. But, what is CPI insurance? 

CPI insurance, or сollateral protection insurance, is a type of property insurance that covers physical damage to or loss of a vehicle used as collateral for a loan. 

This type of policy is usually required by lenders when you take out a car loan. It will provide coverage if the vehicle is damaged in an accident or stolen. It can also be used if the borrower defaults on the loan. In that case, the lender will repossess the car.

What Are the Benefits of CPI Insurance?

There are a few key benefits of having CPI insurance for lenders:

  • If the collateral is damaged, stolen, or destroyed, they will be reimbursed for the total value of the vehicle. 
  • If the collateral is used as security for a loan, it will be protected if the borrower defaults on the loan. 

What Are the Downsides of CPI Insurance?

As with any insurance product, there are some downsides to be aware of when considering CPI insurance. 

  • It can be expensive. The premium cost will vary depending on the value of your collateral, but it can add up to a significant amount over time.
  • CPI insurance may not cover all types of losses. For example, many policies exclude damage caused by floods or earthquakes. Before purchasing a policy, make sure you understand what’s covered and what’s not.

Is CPI the Same as Insurance?

Yes, CPI is insurance. However, regular insurance protects the borrower in the event of a loss, while CPI protects the lender in case of loan default.

What Is Collateral Protection Insurance?

Collateral protection insurance (CPI) is the insurance lenders or leasing companies purchase to protect their interests if a borrower defaults on payments. The policy pays the lender or leasing company up to the full value of the collateral. CPI insurance is also known as force-placed insurance.

Lenders and leasing companies have a legal right to require borrowers to maintain adequate insurance on the collateral used to secure a loan or lease. However, suppose the borrower fails to adequately insure the vehicle. In that case, the lender or leasing company may force their own insurance. Usually, force-placed insurance is much more expensive than regular insurance.

When you finance or lease a vehicle, read your contract carefully to see if CPI insurance is required and, if so, how much coverage you need. If you have questions about force-placed insurance, ask your lender or leasing company for more information.

Which Companies Offer CPI Insurance?

There are a few different companies that offer CPI insurance, such as:

  • Allied Solutions
  • Breckenridge Insurance Group
  • CUNA Mutual Group
  • Lee and Mason Financial Services, Inc.
  • State National Companies
  • SWBC
  • WNC Insurance Services

The processes that need to be followed when getting CPI insurance differ for each company. So, if you need to make a claim, get in touch with your lender to find out how the whole claims process works.

Is CPI Insurance Legal?

Yes, CPI insurance is legal. In fact, it’s one of the most common types of force-placed insurance for vehicle loans. When a borrower defaults on a loan, the lender can file a claim with the insurer to recoup some or all of the losses incurred.

What Is a CPI Waiver?

When you waive CPI insurance, you’re essentially telling your lender that you’re willing to take on the responsibility of insuring your collateral yourself. This means that if something happens to your collateral (like it’s damaged in a fire or stolen), you’ll be the one who has to pay to replace it.

There are a few reasons why someone might choose to waive CPI insurance. The most common one is that they feel confident they can get a better deal on their own. They may also have other insurance policies that would cover their collateral, so they don’t feel the need to pay for extra protection.

Whatever the reason, waiving CPI insurance is a big decision. It’s essential to understand all the risks involved. Talk to your lender or another financial expert if you’re not sure.

How Can CPI Be Avoided?

The best way to avoid CPI is by ensuring that you have full auto insurance coverage. This type of insurance will cover the loan value of your vehicle if it is totaled in an accident or stolen. You can also avoid CPI by paying off your auto loan early. Once the loan is paid off, the lender will no longer require you to carry this type of insurance.

How Can I Get Rid of CPI Auto Insurance?

You can contact your state’s insurance department for more information on CPI auto insurance and how to cancel it.

In most cases, you’ll need to provide proof of other insurance coverage. So, consider shopping around for auto insurance rates to find the best deal. 

Final Thoughts

After reading this article, you should now have a better understanding of what CPI insurance is. This type of insurance can help protect the loan’s collateral if you don’t have car insurance on a financed or leased vehicle. Even though CPI insurance protects your credit in case of a loss, you’re far better off purchasing your own insurance policy.