Collateral Protection Insurance

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The Collateral Protection Insurance is an Insurance which Insures the property which is held as a collateral against the loans given by the lending Institutions. The Collateral Protection Insurance is also called as the force Placed Insurance. This insurance is classified into two types which is as follows :

• Single Interest Insurance
• Dual Interest Insurance

The Singe Interest Insurance protects the interest of One party i.e the lender. Whereas the Dual Interest Insurance protects the Interest of both the lender as well as the borrower.  After signing the loan agreement typically the borrower purchases this policy and lists the lending Institution as the party holding the lien on the asset. If the borrower doesn't purchase the insurance the lender will be prone to huge losses in case the assets are destroyed and the lender himself Turns to Collateral Protection Insurance to protect his interest against the loss.

The Collateral Protection Insurance is purchased by  the lending financial Institutions and the banks in order to protect themselves from the loss by transferring the risk an insurance company. Depending upon the Structure of the policy which is chosen by the lender the borrower who is uninsured may also be protected in several ways. For example a policy may provide that if the collateral security is damaged it can be repaired and retained by the person who has borrowed the money. If the collateral is damaged beyond repair the Collateral Protection Insurance can pay off the loan.