If your car loan payment has gone up, it could be because of something you didn’t expect: security insurance. In some cases, your regular payment may include collateral insurance. But what is collateral insurance?
What is insurance on the collateral?
Collateral insurance is a type of insurance that your lender may buy for you if you don’t want to or can’t get your own policy. You will have to pay for them, though, and they will be added to your monthly car loan payment.
The lender does this because they want to make sure that your car is covered by insurance in case of an accident or other damage. When it comes to this kind of insurance, you don’t have a lot of options, so it may not be the most cost-effective choice.
What is the point of credit insurance?
Collateral protection insurance (CPI) is a type of car insurance that covers real damage to your car. It is picked by your provider and added to your loan payments if you don’t insure your car or don’t insure it well.
When you get a loan to buy a new car, your lender will tell you what you have to do, like to make monthly payments and get the right amount of car insurance. Since the investor owns the car until it is paid off in full, they have a direct interest in making sure it is financially safe. This means that if it gets broken in an accident and you don’t have the money to fix it, both you and the loan will lose money.
The biggest problem with a CPI bonus is that it usually can’t be changed. If you buy your own policy, you can usually get lower rates if you compare companies and policies. Also, if the lender chooses the insurance, the amount of coverage you get will be limited to the amount in your loan deal. You would have to set up your own policy to choose the coverages and amounts that meet your insurance needs.
What does the insurance for security cover?
The goal of collateral insurance is to cover any physical damage to your car, so it usually includes at least accident and comprehensive coverage. Depending on the plan your loan buys for you, it may also include coverage for medical costs and liability. Most insurance plans that cover collateral guard against things like:
Theft: If someone steals something from your car, like the radio, your complete coverage will pay for any costs to fix or replace it. Also covers damage someone does to your car when they break into it. Note that this type of coverage usually doesn’t cover things that are stolen from your car, like your wallet, bag, or phone.
Vandalism: If thieves break into your car and damage it, full coverage would pay to fix or replace it, up to the insurance limits. Comprehensive coverage will pay for things like broken windows, cut tires, and broken side mirrors.
Fires: A fire can ruin both the way your car looks and how it works. Comprehensive coverage protects both financially, up to the limits of the insurance.
Falling things: It’s rare that anything other than a tree or branch will damage your car, but stranger things have happened. Comprehensive covers you for anything that falls on your car, like lamp posts, AC units, or other things.
Animals (like hitting a deer): If a rodent like a mouse or a rat chews on the wires in your car, complete coverage will pay to fix it. Even if you hit a deer with your car, your full coverage will pay for the damage.
Weather events—Comprehensive coverage pays for damage caused by hail, lightning, and stormwater. But if a leaky pipe or roof in your garage causes water damage to your car, that kind of damage is not covered.
Collision with another car—This is the type of coverage that most people need. It pays for any damage to your car that happens while you’re driving, whether it was your fault or not. It doesn’t pay for damage to the other driver’s car.
Collision with a stationary object, like a sign, fence, or stopped car — If you hit a parked car or a sign with your car, your accident policy would pay for the damage. But it won’t pay for the damage you did to the thing you hit. For that, you would need protection against damage to other people’s property.
Forced insurance vs. collateral insurance
Forced-placed insurance and asset protection are pretty much the same things because they both do the same thing and are put into place at the same time. The main difference between the two is that you can get forced auto or home insurance, but you can only get security protection for your car. So, think of collateral protection as a type of forced insurance that only applies to cars.
Refunds for collateral protection
Sometimes, lenders make mistakes and ask borrowers to buy CPI when they didn’t need to. If you were forced to buy CPI when you didn’t need to, there are ways to get out of it. Most of the time, the problem can be fixed by giving your provider a copy of your proof of insurance or the statements page of your policy. If neither of these works, you might have to put your provider in touch with an insurance agent. The CPI payments should stop once your loan gets the right papers.
You may have been charged CPI for any days you weren’t properly covered, even if you finally got your own insurance and no longer needed lender-selected collateral protection. If this is the case, you probably won’t get your money back for any CPI that was added to your loan payment during the time you didn’t have your own insurance. In this case, you are ‘back-paying’ for protection. No matter what your case is, make sure to let your lender know if and when your own policy is in place. This will help you avoid any extra costs that aren’t necessary.
