What is Collateral Protection Insurance and When Lenders Use It

Unseen hazards are inevitable in both the business world as well as your personal life. An effective way to tackle these challenges when they arrive is to set security measures in advance. You might wear a seatbelt to avoid an unforeseen accident, but in the business world, risks work more complicatedly.
Collateral Protection Insurance (CPI) is a similar cushion against the potential risk available on vehicle loans to customers. By having a CPI agreement in place, lenders feel more prepared to face the unseen threat. Today, we will tell you what is CPI, how it works, and when it’s used the most.
What Does CPI Mean?

CPI begins with the lender placing coverage on the customer's vehicle. Upon taking a vehicle loan, the agreement requires the borrower to avail of damage insurance to maintain the loan collateral. However, not all loan borrowers comply with this demand – some do not purchase the insurance policy, and many just let the insurance coverage pass.
A recent study shows that 1 in 8 drivers in the U.S. remain unsecured and certain states witness uninsured motorists as high as 29%. It means the prospect of car damage poses an ever-existing risk to the lenders. It is where a program like CPI comes into play, offering lenders a way to mitigate the unseen risk.
How Does CPI Work?

CPI is quite similar to other types of insurance agreements. The CPI subscribers pay whenever damage occurs to the vehicle. However, there also exist many differences between CPI and other insurance contracts.
CPI program objectives may issue the CPI contract on your behalf if you fail to meet the requirement to avail one on your own. In this case, you may not be underwritten separately; instead, the provider issues a certificate of coverage.
As the status of underlying insurance determines the CPI placement, it can cause accidental lender-placed insurance. To avoid this, CPI needs extensive monitoring, service, and management. The way lender saves time and money directly correlates to the CPI provider’s capacity to accurately and swiftly determine and tackle a lapse in coverage.
The collection and maintenance of the customer’s private insurance data are also necessary. It ensures that the CPI placements are accurate. Furthermore, when the customer purchases the required insurance, it helps in disbursing correct refunds. It shows the importance of the CPI provider by the lender. An optimal CPI supplier would offer efficient and easy ways to update their insurance to the customers on behalf of the lender.

What Does CPI Cover?

Now that we know the background of CPI, let’s look at what the contract includes. CPI agreement generally covers the physical damage to the vehicle, but it may also comprise protection against medical expenses and liabilities.
Physical protection under CPI includes comprehensive and collision coverage:
1. Comprehensive Coverage: Protects against weather and animal damage, vandalism, and theft.
2. Collision Coverage: Offers cushion against harm caused to the vehicle by a fixed or striking object, such as a car, wall, rail, or a building.

When Do Lenders Use CPI?

Lenders use CPI to mitigate the risk resulting from vehicle financing. Lenders can self-insure the unsecured damaged vehicles once they repossess them. Similarly, some of them use a portfolio protection program to hedge themselves against the risk, which regulators also encourage.
These portfolio protection programs include agreements such as blanket policy and CPI, which most lenders use.

How Much Does CPI Cost?

Premiums on CPI can vary from provider to provider. However, CPI is more expensive than standard car insurance issued by regular companies. CPI, which is part of the lease agreement, requires you to retroactively pay the premium for the days your vehicle went without insurance coverage.
For instance, you loaned out a car on 1st January and had to get vehicle insurance on the same day. However, you went without adequate coverage for the whole of January. The lender would have an enforceable right to charge CPI premium for January and any succeeding month until you purchase car insurance.

How to Get a CPI Refund?

Sometimes, lenders and insurance companies make a mistake. They charge you for a CPI while you had an active insurance policy required by the vehicle loan. In this case, you’re eligible for a refund on the CPI premium paid.
However, to receive the refund, you must have valid evidence in the form of a declaration page or insurance card. Next, you need to contact your lender and prove them the insurance to receive the backdated refund. You should consider seeking legal advice if your lender fails to offer a refund even after providing valid evidence.


In both personal and business life, you have to face unseen risks. Hence, take precautions beforehand to avoid heavy damage from these hazards. Collateral Protection Insurance is one of such measures taken by vehicle lenders to steer clear of loss resulting from the loan. It’s an excellent option for lease-here-pay-here dealers to tackle borrowers who don’t purchase standard car insurance required by the financing. However, if CPI providers or lenders charge you a premium while you had standard insurance in place, you’re eligible for a refund after showing a piece of valid evidence.

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