How CPI Works
When a borrower takes out a loan for a vehicle at a lending institution, he or she signs an agreement to maintain dual-interest insurance, protecting both the borrower and the lender with comprehensive and collision coverage on the vehicle throughout the life of the loan. The borrower provides proof of insurance to the lender, which is verified by the CPI provider or a tracking company.
If proof of insurance is not received, notices are sent to borrowers prompting them to obtain required coverage. If responses to notices are not received, the lending institution may choose to have CPI coverage “force-placed” on the borrower’s loan to protect its interest from damage or loss.
The lending institution passes the premium charge on to the borrower by adding the premium to the loan principal and increasing the loan payments. If the borrower subsequently provides proof of insurance, a refund is issued.
Throughout the life of a loan, the CPI provider monitors proof of insurance to ensure that policies remain in force. If policies lapse, notices are sent in accordance with the procedure outlined above.
Read more about this topic: Collateral Protection Insurance
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