When a borrower enters into a loan agreement with your institution, he or she will probably pledge a home, vehicle or another asset as collateral. Collateral is the backup, in case the borrow defaults on the loan. What do you do if something happens to the asset and the borrow still defaults? Single interest insurance or vendors single interest insurance is protection for the lender.
What Is Single Interest Insurance?
Single interest insurance protects your institution if a borrower’s collateral is damaged, vandalized or stolen. Also, this type of insurance coverage may even cover the costs associated with repossessing the item. The types of collateral you may need coverage for include boats, motorcycles, homes, equipment, ATVs and other high-valued assets.
What Are the Advantages of Single Interest Insurance?
You cannot predict the future of an asset. Items can be stolen, they can be damaged in a fire, storm or other disaster. Insurance provides you with security, in the off chance that something does happen. Additionally, many policies also offer gap coverage. Gap coverage can pay for the difference in the value of the asset and the cost of the loan.
While collateral may be your backup plan if the borrower does not pay his or her loan, you also need to have security in case the backup also falls through. This is where single interest insurance helps lenders.