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.
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 $250, a lender cannot add more coverage on top of this agreement.
Collateral protection insurance typically covers physical damage to the vehicle.
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. CPI is NOT liability coverage, you are still required to carry at least liability insurance in order to comply with Florida laws.
The cost will be charged according to your auto loan payment frequency. $119 a month or $59.50 bi-weekly.
To put it simply, the best way to avoid having forced car insurance added to your auto loan agreement is to meet your lender’s insurance requirements — and to keep your car insured at that level for the duration of your loan. If you already have CPI, the only way to remove it is to add coverage or buy an insurance policy and show acceptable proof of insurance to us.
For questions or more information please contact our office at (863) 940-9675