What is Collateral Protection Insurance?

Can your bank order forced car insurance? Let's examine why collateral protection insurance exists and how it works.
Location pin icon
No junk mail. No spam calls. Free quotes.

Why you can trust The Zebra

The Zebra partners with some of the companies we write about. However, our content is written and reviewed by an independent team of editors and licensed agents. Reference our data methodology and learn more about how we make money.

Author profile picture

Ava Lynch

Insurance Analyst

Ava joined The Zebra as a writer and licensed insurance agent in 2016. She now works as a senior insurance contributor, providing insights and data a…

Credentials
  • 9+ years of Experience in the Insurance Industry
Author profile picture

Bill Mense

Partner, United Heartland Insurance

William Mense has amassed 45 years of insurance experience in a family-owned agency begun in 1914 by his grandfather. That agency is now in its 3rd g…

Author profile picture

Beth Swanson

Insurance Analyst

Beth joined The Zebra in 2022 as an Associate Content Strategist. A licensed insurance agent, she specializes in creating clear, accessible content t…

Credentials
  • Licensed Insurance Agent — Property and Casualty
  • Associate in Insurance

Collateral protection insurance (CPI): basics and background

 

Sometimes referred to as forced car insurance or lender-placed insurance, collateral protection insurance is enacted when an individual who takes out an auto loan fails to adequately insure the vehicle and the bank or lender forces their own coverage. Because a bank or lending agency technically owns the vehicle, they want the vehicle protected by an insurance policy — which is why collateral protection auto insurance exists.


How does CPI work?

When you sign an auto loan contract, you agree to certain stipulations. This includes making loan payments on time and insuring the vehicle adequately. When you enter the loan contract, you’re usually required to show proof of insurance within a certain period. The lender then verifies the documents. If your insurance is valid, collateral protection coverage is not forced upon you. If you fail to get insurance — or if the documents are invalid — the lender is within its rights to add CPI to your loan payments.

Some lenders or lienholders use insurance tracking programs to ensure a vehicle remains insured for the life of the loan.

A lender will typically contact you prior to adding CPI coverage. Moreover, they cannot add coverage outside of the requirements in your loan agreement. If you meet loan stipulations requiring comprehensive and collision coverages with set deductibles at $500, a lender cannot add more coverage on top of this agreement.

auto insurance policy

What does collateral protection insurance cover?

Collateral protection insurance typically covers physical damage to the vehicle. It may also include medical expenses and liability coverage.

Physical protection refers to collision and comprehensive coverages:

  • Collision coverage protects a vehicle against damage caused by striking a fixed object: a wall, rail, or another vehicle.
  • Comprehensive coverage protects against vandalism, theft, animals, and weather-related damages.

How much does forced car insurance cost?

While CPI premiums may vary, collateral protection insurance is often more expensive than car insurance issued through a standard company. If CPI is part of your lease agreement, you'll need to retroactively pay for any days on which you leased the car but didn't carry adequate coverage.

Let's say you signed a loan agreement on August 1st and were expected to carry the specified insurance coverage beginning that day. If your proof of insurance actually began on September 1st, your lender would be within its rights to enforce collateral protection insurance for the month in which your vehicle was not covered. There really isn’t a way to avoid paying the backdated premium.

money

How much does forced car insurance cost?

While CPI premiums may vary, collateral protection insurance is often more expensive than car insurance issued through a standard company. If CPI is part of your lease agreement, you'll need to retroactively pay for any days on which you leased the car but didn't carry adequate coverage.

Let's say you signed a loan agreement on August 1st and were expected to carry the specified insurance coverage beginning that day. If your proof of insurance actually began on September 1st, your lender would be within its rights to enforce collateral protection insurance for the month in which your vehicle was not covered. There really isn’t a way to avoid paying the backdated premium.


How to get a refund for forced insurance coverage

Unfortunately, insurance companies and lenders screw up sometimes. If you actually had the required auto insurance but for whatever reason were charged for CPI insurance, you are entitled to a refund if you can prove you were insured during the required period. Proof can include an insurance card or declaration page. You will need to call your lending institution and present them with your proof of insurance. Typically, you should be able to get a backdated refund.

If your bank or lender will not furnish a refund despite showing proof of insurance, seek legal advice.

Compare rates from over 100 companies quickly and easily.

Location pin icon
No junk mail. No spam calls. Free quotes.

RECENT QUESTIONS

Other people are also asking...

Does car insurance cover trailers?

Great question! It would depend on the coverage on your policy, but the liability portion of your policy normally extends to cover injury or damage that was caused to someone else by your trailer. If your auto policy also includes comprehensive and collision (full) coverage then your trailer may al…
Jun 29, 2016 Independence, MO

Why is it so difficult to find insurance after a lapse in coverage?

Thank you for reaching out to The Zebra! I'm sorry to hear that you're having difficulty finding insurance after experiencing such a devastating event like losing your home. Auto insurance companies rate heavily on whether or not you have prior insurance or not. Any lapse in coverage (eve…
Dec 26, 2023 New Prague, MN

Can someone with power of attorney make changes to a car insurance policy?

Thank you for reaching out to The Zebra. These are excellent questions!Because you have power of attorney, you are legally allowed to make decisions on behalf of your husband. If you contact his insurance company and provide a copy of the power of attorney you should be able to make any changes, li…
Jun 1, 2023 Louisville, KY

Does car insurance cover rodent damage?

Sorry to hear about your misfortune! Luckily enough, you should be able to file this claim through your insurance company assuming that you have comprehensive coverage on your policy. Comprehensive covers most damage to your vehicle that wasn't the result of an accident. This would include thi…
Jul 17, 2016 Appleton, WI

About The Zebra

The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.

  • The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.
  • The Zebra’s insurance editorial content is not subject to review or alteration by insurance companies or partners.
  • The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.
  • The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.