Single Interest Insurance Definition

What is single interest insurance?

Single interest insurance, also known as sellers single interest insurance or VSI insurance, covers the interests of one of the two parties who are co-owners of a property. This type of insurance generally covers part or all of the unpaid value due to a lender for mortgaged or leased property.

Single interest insurance generally applies only to the interest of a lender or finance company. VSI insurance is structured to protect the interests of the lender, but not the borrower of a home, auto, or other consumer loan. Although the lender may pass on the cost of VSI premiums to the borrower, the borrower does not benefit from any protection in the event of collateral (like a car or a house) is destroyed or damaged.

Key points to remember

  • Single interest insurance, also known as seller’s single interest insurance or VSI insurance, protects the lender but not the borrower of a home, auto, or other consumer loan.
  • Single interest insurance covers the loss or damage to a loan’s collateral, which is the high-value underlying asset, such as a car, boat or house.
  • In the United States, some states allow the lender to pass on the cost of a VSI insurance policy to the borrower, who may be required to purchase the insurance in order to receive a loan.
  • Lenders can opt for comprehensive coverage on their VSI insurance policy, which provides broad coverage options for their entire consumer loan portfolio.
  • This coverage may include ignored account protection, theft protection, errors and omissions coverage, and repossession coverage.

Understanding Single Interest Insurance

In most cases, flat rate insurance covers damage or loss of a loan underlying asset. Often this also includes the cost to the lender of repossessing that asset, if necessary. Finance companies that lend to customers with marginal or poor credit sometimes require this type of coverage to insure against the cost of customer default. Some states allow lenders to pass on the cost of the policy insurance premium to the borrower.

Benefits of Single Interest Insurance

The vast majority of single interest insurance policies cover the lender’s interest in vehicles and other high value assets. personal property, such as pleasure boats and personal watercraft. Single interest insurance policies generally offer gap coveragewhich reimburses lenders for the difference between the value of the asset and the outstanding loan principal.

Lenders can opt for blanket blanket, which provides broad coverage for their entire consumer credit portfolio. Instead of tracking and tracing individual policies, global coverage allows lenders to reduce their administrative costs. Hedging options may include:

  • Ignore Account protection to reimburse search costs for defaulting borrowers
  • Theft protection to cover property that could be damaged or stolen
  • Repossession coverage to offset costs and damages incurred during the repossession process
  • Lien coverage to protect against errors and omissions on title documents

Single interest insurance and purchase of vehicles

Most states require drivers to provide proof of auto insurance before allowing them to drive a vehicle legally. Similarly, financial services companies generally require proof of insurance before subscription a car loan. If for any reason a buyer cannot present proof of insurance when purchasing the vehicle, the finance company may require the buyer to purchase seller’s one-time interest insurance.

A finance company may also request one-time interest coverage if the borrower’s credit history is weak or insufficient, making default more likely.

Lenders may also require one-time interest insurance for borrowers who don’t have a low enough credit score to decline the loan, but don’t have a good score or a lot of credit history.

Example of single interest insurance

Suppose a subprime borrower purchases a vehicle for $36,000. A year later, the borrower is involved in an accident and an insurance company declares the car a total loss. The borrower’s insurance policy calculates the value of the vehicle less depreciation at $29,000.

Since the borrower still owes nearly $35,000 in outstandings to the finance company director, the insurance company sends the check for $29,000 directly to the finance company. In this scenario, the borrower is still responsible for the remaining $6,000 principal on a car they can no longer drive. The borrower can decide to stop making payments, defaulting on the loan. The finance company’s provider’s single-interest insurance policy will cover the $6,000 that the borrower defaulted on.

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