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Who Is Covering The Loan?

Updated: May 27, 2022

DURING THE TERM OF THE LOAN, THE LOAN IS BEING COVERED BY:


  1. THE BORROWER'S PRIMARY INSURANCE COMPANY, OR;

  2. THE FINANCIAL INSTITUTION'S COLLATERAL PROTECTION INSURANCE COMPANY, OR;

  3. THE FINANCIAL INSTITUTION

THE BORROWER'S PRIMARY INSURANCE COMPANY

WHEN THE BORROWER HAS PRIMARY INSURANCE COVERING THE COLLATERAL, THE PRIMARY INSURANCE CARRIER IS RESPONSIBLE FOR COVERING PHYSICAL DAMAGE LOSSES. THE MORE COLLATERAL SECURING A LOAN THAT IS INSURED BY A PRIMARY INSURANCE CARRIER, THE LESS RISK ON YOUR COLLATERAL PROTECTION INSURANCE PROGRAM.


THE FINANCIAL INSTITUTION'S COLLATERAL PROTECTION INSURANCE PROGRAM

WHEN THE COLLATERAL IS UNINSURED, THE FINANCIAL INSTITUTION'S COLLATERAL PROTECTION INSURANCE PROGRAM INSURES THE LOAN THAT IS SECURED BY THE COLLATERAL.THE MORE UNINSURED PIECES OF COLLATERAL COVERED BY THE COLLATERAL PROTECTION INSURANCE PROGRAM, THE GREATER THE RISK OF CLAIMS PAID.


THE FINANCIAL INSTITUTION

WHEN THE COLLATERAL IS NOT INSURED BY PRIMARY INSURANCE OR THE FINANCIAL INSTITUTION'S COLLATERAL PROTECTION INSURANCE PROGRAM, THE RISK FOR UNINSURED PHYSICAL DAMAGE LOSSES IS TAKEN ON BY THE BORROWER, WHICH IS ULTIMATELY THE LENDERS RISK.


Examples of risk to the lender:

  1. loans made on collateral over the maximum limit of liability covered by your collateral protection insurance program. i.e. a $120,000 loan, but your master policy only covers up to $100,000

  2. loans under the low loan balance threshold. i.e. a loan is under $2,000, and the lender does not require proof of insurance on loans under $2,000.

  3. an exception made to a borrower to not require proof of insurance.

the purpose of insurance is to mitigate the risk to the financial institution. the decisions you make about your program will determine if the risk has been mitigated or taken on by the lender.


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