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Sometimes referred to as mandatory auto insurance or lenders withheld insurance asset protection insurance applies when a bank or lender imposes their coverage if the car borrower fails to adequately insure the vehicle. The bank or lending company technically owns the vehicle so they want it to be covered by an insurance policy – thats why there is asset protection auto insurance
What Is Collateral Car Insurance
When you sign a car loan agreement you agree to certain conditions. This includes paying the loan on time and having the right vehicle insurance. When concluding a loan agreement you must submit proof of insurance within a certain period of time. The lender verifies the documents. Warranty coverage is not binding on you if your insurance is valid. If you cant get insurance – or the documents are not valid – the lender has the right to add a CPI (Collateral protection insurance) to your loan payment.
Some liens or lenders use insurance tracking programs to ensure that the vehicle remains insured for the duration of the loan. Lenders will usually contact you before adding CPI coverage. Also they cannot add more coverage than required in your loan agreement. If you meet the terms of the loan that require comprehensive coverage and crash with the deductible set at $500 the lender cannot add more coverage on top of this agreement.
How Does Collateral Car Insurance Work?
Collateral Protection Insurance (CPI) is a car insurance policy that protects the vehicle against physical damage. If you choose a lender and the car does not have car insurance (or not enough insurance) the loan amount will be increased.
Lenders must meet certain requirements when lending for the purchase of a new car such as making monthly payments and purchasing adequate car insurance. The car technically belongs to the lender until it is paid in full so you are interested in securing it financially. This means that if you are damaged in an accident and cannot pay for repairs then both you and your lender are financially affected by the loss.
The main disadvantage of CPI premiums is that they are generally non-negotiable. You can usually get a lower rate if you shop around and compare different service providers if you keep your policy. Additionally the amount of coverage you get under the policy selected by the lender is limited to the amount of the loan agreement. You need to tailor your plan with the insights and limits that best meet your insurance needs.
What Does Collateral Insurance Protection?
Collateral insurance is designed to cover physical damage to your car. This usually means a minimum of collision and comprehensive coverage (although medical and liability coverage may also be covered depending on the plan the lender purchased). Most policies with liens protection insurance cover things like:
Theft. If someone steals something from your car (radio etc.) all costs associated with repair or replacement will be covered. It also covers car damage caused by someone breaking into your car. Note: Items stolen from your car (wallet purse cellphone etc.) are generally not covered by this type of protection.
Vandalism. Reimburse the cost of repairing or replacing a vehicle if destroyed by a criminal up to the policy limit. Damage to window glass Cut tires Damage to side mirrors etc. are all examples of accidents covered by full compensation.
Fire. Fire can damage the appearance and function of your vehicle. Comprehensive coverage provides financial protection for both up to the policy limit.
Falling objects. While its unlikely your car will be damaged by anything other than a falling tree or branch strange things can happen. Universal protects you from anything that falls on your vehicle from street lights to A/C units or other objects that could land on your vehicle.
Animals (such as killing deer); If rats or rodents like mice go all-in on your cars wiring your cars repair costs will be paid. Comprehensive coverage covers damage to your vehicle if you hit a deer.
Weather event. Lightning hail and flood damage is included in the full warranty coverage. However if the car is damaged by leaking pipes or water on the roof (garage etc) this type of damage is not covered.
Collision with another car. In general most people need crash compensation. This insurance pays for damage caused while the car is in motion whether through your fault or not. We do not cover damage to other peoples cars.
A collision with a stationary object (such as a car parked with a marker fence). Your collision coverage will cover damage to your vehicle if you back into a parked car or hit a sign. However you will not pay to repair the item you hit. For this you need property damage liability insurance.
How Much Does Collateral Coverage Cost?
CPI costs vary from country to country and from lender to lender. However you can expect CPI to be much more expensive than auto insurance that you buy yourself. There are several reasons for this. First you dont have a chance to shop around to find the best deal. The policy the lender chooses is the policy you get. In addition borrowers who do not have their own insurance are considered a higher risk by insurance companies so CPI insurance premiums are generally higher.
