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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, theftanimals, 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.

If there was a mistake and you can prove that you had the proper insurance during the required time frame, then call your lender to request a backdated refund.

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RECENT QUESTIONS

Am I covered while I'm moving to a new state?

I'm so sorry to hear about your accident during such a transitional and inconvenient time! I would contact your insurance company in Oregon and talk to the claims department to see if this will be covered. Many companies provide a grace period for you to obtain other insurance while you are moving to another state.
Jul 22, 2022 Atlanta, GA

Can my son use his pickup truck this summer to haul stuff for a fee?

Anyone listed as a driver on the policy will be covered to operate the vehicle for personal use. If a person lives with you, drives the vehicle on a regular basis, and isn't listed as a driver on the policy then they are definitely not covered to drive.
Jun 21, 2016 Clarksville, TN

I just bought a used car and it is still insured under the previous owner. Am I covered?

When the ownership of a vehicle transfers from one person to another then the insurance coverage is no longer valid for the new owner. Even though the policy may still be active from the previous owner, you now own the vehicle and are not listed as a driver on the insurance coverage.
Apr 6, 2016 Sioux Falls, SD

If I bought a car and the previous owner still has insurance on it, will I be able to insure the vehicle on my own policy?

Yes, you should insure the vehicle as soon as you take possession of it. You don't have to wait for the policy of the previous owner to cancel, nor should you.
Feb 16, 2017 Arcadia, FL

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 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.