Collateral Protection Insurance (CPI) is a valuable tool for financial institutions, protecting them against loss of a borrower’s collateral.
“But Joe, the borrower has insurance for that situation. What’s CPI do, then?” Great question. While the loan terms require the borrower purchase and maintain physical damage insurance, do they always keep it?
When insurance coverage lapses…
For a range of reasons, a vehicle sometimes loses individual insurance coverage. The borrower may fail to pay the premium, or simply allow it to lapse. That’s where Collateral Protection Insurance kicks in to protect the institution’s collateral.
CPI combines comprehensive “force-placed” coverage with state-of-the-art monitoring to track coverage and refunds. Traditionally, CPI was charged annually. This created an affordability and logistic challenge for refunds and such, so…
Monthly for Simplicity
To simplify the program while making coverage more affordable to the borrower, some providers built a “Monthly Payment” form of CPI. It charges premiums by the month, reducing costs for borrowers possibly already financially strained.
Most CPI vendors now offer such an option. You can often find it with the branding “Hybrid CPI”.
This article discusses the differences between Traditional and Monthly Payment CPI programs. We hope to help you make the best decision for your borrowers and institution.
We’re happy to chat with you about CPI from our partner provider, Insurance Services, Inc. (ISI). Of course, their CPI solutions may or may not be a fit for your institution. Our information is useful regardless of which provider you may choose.
So, what are the differences? And which type is the best fit for your institution? Let’s take a look:
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Monthly vs. Traditional CPI Comparison
Not seeing a table below, or having issues viewing it on your device? View the comparison table directly to easily see all data.
Any CPI program shares two basic goals:
- Protect the lender from the physical damage risk to the borrower’s collateral;
- Track and encourage borrowers to keep and maintain their own private insurance.
Whether you choose a Monthly Payment or Traditional CPI program, both can achieve these goals.
Is Monthly Payment CPI for your institution?
To clarify, the main differences with Monthly Payment CPI are:
- Lack of some optional lender insurance coverages;
- A flat fee as opposed to the traditional outstanding loan balance rates;
- Refunds are monthly pro rata;
- Terms are from 1-6 months;
- Standard liability limits are typically lower.
However, its simplicity for all parties, combined with a “low noise level”, and low day-to-day cost help it achieve the main goal:
Provide needed insurance coverage without contributing to increased repossessions.
Such a program may outweigh potential shortcomings compared to Traditional CPI. Or it may not. It’s all about finding the proper balance for your institution.
The Right CPI for You
These are decisions best discussed with a trusted provider. Working closely to best understand the needs of your institution, they can help you make the right choice for all parties.
Then, you can spend more time focusing on your members, knowing your portfolio is protected 24/7, 365.
Want a hand to hold as you begin looking deeper at your CPI offering? Let’s start the conversation. We will stick with you no matter where it leads.
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