A Collateral Protection Insurance (CPI) is protection offered to insurance providers which insures the collateral or property held for the loans forwarded. Such type of insurance is usually found in the auto insurance market or in which a vehicle is provided as collateral. CPI may be classified as single-interest insurance if it shelters the interest of the lender, a single party, or as dual-interest insurance coverage if it shields the interest of both the loan provider and the loan applicant who offers the collateral.

• In most cases a borrower is required to possess comprehensive collision cover; however if such a cover is not purchased then the risk to the lender increases dramatically. In order to mitigate this risk the lender can turn to CPI for protecting its interests in the asset provided as collateral. The need for CPI arises because of the fact that approximately 15 percent of the drivers in the United States are uninsured. This necessitates some type of cover for the lender in case there is damage to the vehicle which is very likely.
• Lenders purchase CPI in order to transfer the risk to an insurance company and CPI only affects uninsured borrowers. Moreover, depending on the structure of the CPI opted by the lender, it may also pay off the loan if the collateral is damaged beyond repair. A CPI can also empower a borrower to repair and retain the vehicle which works well with the lenders as well as the borrower.
• Collateral Protection Insurance works in a simple manner; the borrower signs a dual interest insurance which protects the borrower and the lender with comprehensive and collision coverage. The borrower then provides proof of insurance which is verified by the CPI provider. If the proof is not sent then the CPI is forced-placed after notices are left un-responded by the lender and the borrower. This means that a certain amount is added to the loan payments and if proof of cover is provided by the borrower then the applicable amount is refunded to the borrower.
• CPI has faced many problems in the past which have resulted in unnecessary harassment of borrowers and unreasonable earnings for some lenders. Borrowers were not made aware that a CPI could be forced placed on their account and the payments may increase. This resulted in unexpected expenses for the borrowers and also promoted distrust in the market. Furthermore, the inefficiency of some of the CPI providers meant that either borrowers were insured once again (even though in possession of CPI or comprehensive and collision) or insured borrowers being sent letters and notices that they were in fact uninsured.
• As a result of the above mentioned problems, lenders enhanced their contract language to address the disclosure problems that were present in the past. Furthermore, the practices and supporting technologies of the CPI market have developed since the 1980s. Nowadays, important CPI providers offer online tracking systems that are updated in real time and are utilized by providers, borrowers, and lenders to communicate and synchronize on insurance linked problems.

If you have ant more points or facts to add about this topic, please feel free to leave a comment.

This is the continuation of the fourth part of the glossary of terms related to auto insurance. Hope you find it beneficial in understanding auto insurance or vehicle insurance in a better manner by filtering the terminology and perhaps save money when you get into such auto insurance contracts.

• Personal Injury Protection: This is usually called as “no-fault” insurance. This was intended to compensate swiftly not considering fault or negligence for tangible financial to a driver or passenger wounded in the automobile and to pedestrians hurt by your vehicle, because of its use or functions. It is applicable to personal injuries only, not for material harm to the automobile.
• Policy: This is the written contract between the insured person or entity and the insurer or the insurance company that binds both parties to it.
• Policy lapse: This simply means that the policy has been canceled or terminated and it has lapsed or ceased to exist.
• Policy period: This is the amount of time or the period for which the insurance policy provides coverage or protection to the insured person or entity.
• Premium: Premium is the periodic amounts that are shelled out by the insured individual or entity in order to keep the auto insurance policy in force.
• Primary use: The main use of the vehicle is called the primary use.
• Property damage liability coverage: This is a type of coverage that offers protection in case there is damage to the property of a third party due to the insured driver’s fault.
• Rate: A rate can be defined as a base unit that helps in determining the premium. This is not the premium itself but only helps in determining the amount shelled out as premiums for an auto insurance policy.
• Risk: This is the chance of suffering a loss in the context of the use of a motor vehicle by the insured.
• Reinstatement: This can be defined as the restoration of a canceled policy.
• Replacement cost: This is the cost that will be required to repair or replace a certain damaged part of a vehicle.
• Short rate cancellation: This is the cancellation by the insured of an insurance policy for which the returned, unearned premium is reduced by management expenses sustained when the insurance company places the policy on its books.
• Underwriter: An underwriter is a person in an insurance company whose job is to decide what insurance risks will be accepted and on what conditions.
• Uninsured motorist coverage: This type of cover is also abbreviated to UIM provides coverage for bodily harm done by a driver who is underinsured. It usually does not cover damage to your automobile.
• Uninsured motorist bodily injury coverage: This is a type of insurance that covers the insured and family unit if wounded by a hit-and-run driver or motorist or an uninsured motorist,: the only condition being that the other driver should be at fault and not the insured person or entity.
• Unsatisfied Judgment fund: This is a unique fund which, subject to numerous limitations, pays persons for physical damage occurring due to the use of a motor vehicle for their damages if the person acquires a judgment against the accountable party and is powerless to collect on that judgment.
• Young drivers: These are drivers under the age of twenty five years are regarded as “young drivers” and, possibly due to their inadequate skill on the road, considered more prone to make a claim. Therefore higher premiums may apply for such people.

Auto insurance can be a complicated subject and understanding the terminology used in this field may help in better management of your auto insurance policy. Here are some terms related to auto insurance which may help in understanding and economizing on your vehicle insurance.

• Accidental death benefit: This can be defined as an additional life insurance policy assistance that offers a death benefit besides the policy’s basic death benefit if the insured person’s death happens because of an accident.
• Actual cash value: Actual cash value is the amount corresponding to the fair market value of the stolen or spoiled property instantaneously previous to the loss. For real assets, this sum can be based on an assessment of the fair market value of the assets before and subsequent to the loss. For automobiles, this amount can be calculated by neighborhood vicinity private party sales and dealer quotations for similar automobiles.
• Adjuster: An adjuster is a person who is responsible for investigating and evaluating for an insurance carrier in case of an accident.
• Agent: An agent is an individual who is licensed to sell insurance on behalf of an insurance company.
• Arbitration: Arbitration is the evaluation made by an impartial entity comprising of experts as to the value of the vehicle or property and the extent of damage.
• Auto Insurance Premium Discounts: These are the discounts offered by the insurance provider on premiums because of certain positive traits demonstrated by the insured such as a good driving record and observing safety rules conscientiously.
• Blue book: A blue book is a publication that calculates and determines the worth or value of used vehicles or cars.
• Binder: An insurance binder is an oral or written agreement that is temporary in nature and remains in force till an official formal policy is accepted or denied.
• Bodily injury: This is a liability coverage that pays in case of injury caused to another party or death due to an automobile accident caused by you (the insured).
• Broker: A broker is an insurance salesperson who assists in finding an insurance product for consumers by dealing with companies and agents.
• Burglary: This is the forceful and unauthorized entrance into a home or vehicle that results in a loss of the property for the insured.
• Claim: A claim is a request for compensation for losses suffered due damages. There are two basic types of claims; third party claims are those in which a person makes a claim against another person’s company. First party claims are those that are directly made by a person to his or her own insurance company.