What is 'Single Interest Insurance'

Single interest insurance covers the interests of one of the two parties that co-own property. This type of insurance typically covers a portion or all of the outstanding value owed to a lender for mortgaged or leased property. 

Single interest insurance typically applies only to the interests of a lender or financing company, since a lessee’s interest in the insured property usually overlaps with the lender’s interest.​​​​​​​

BREAKING DOWN 'Single Interest Insurance'

In most cases, single interest insurance covers damage to or loss of a loan’s underlying asset. Often, it also includes the cost of repossessing that asset, if necessary. Financing companies who lend to customers with marginal or poor credit sometimes require this type of coverage to insure against the cost of customer default. Many states permit lenders to pass the price of this policy onward to the borrower.

Common Provisions of Single Interest Insurance Policies

The vast majority of single interest insurance policies cover vehicles and other high-value personal property such as pleasure boats and watercraft. Single interest insurance policies commonly offer gap coverage, which reimburses lenders for the difference between the value of the asset and the outstanding loan principal. Other coverage options might include 

  • Skip-protection to reimburse the expense of tracing down default borrowers 
  • Theft protection to cover assets which may be damaged or stolen
  • Repossession coverage to offset the costs and damages incurred during the repossession process.

Single Interest Insurance and Buying Vehicles

Most states require drivers to provide proof of automobile insurance before they will allow them to drive a vehicle legally. Likewise, financial service companies typically need proof of insurance before underwriting an automobile loan. If for some reason a buyer cannot show proof of insurance when purchasing the vehicle, the finance company might require that the buyer purchase Vendor Single Interest (VSI) insurance. 

A finance company also may request single interest coverage if the borrower’s credit history is weak or lacking making default more likely. Usually, these borrowers do not have a credit score low enough to deny the loan, but may not have a strong score, or much credit history.

Suppose a risky borrower purchases a $36,000 vehicle. A year later, the borrower gets 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 minus depreciation, at $29,000. 

Since the borrower still owes the finance company almost $35,000 in outstanding principal, the insurance company sends the check directly to the finance company. In this scenario the borrower on the hook for the remaining $6,000 of principal on a car that they can no longer drive. The borrower may decide to stop making payments, defaulting on the loan. The finance company’s vendor single interest insurance policy will cover the $6,000 on which the borrower defaulted.

RELATED TERMS
  1. Cover Note

    A cover note is a temporary document issued by an insurance company ...
  2. Commercial Lines Insurance

    Commercial lines insurance helps keep the economy running smoothly ...
  3. Classified Insurance

    Classified Insurance is coverage provided to a policyholder that ...
  4. Additional Insured

    Additional insured is a type of status associated with general ...
  5. As Their Interests May Appear (ATIMA)

    As their interests may appear is text in an insurance policy ...
  6. Combination Agency

    A combination agency is a dealer in retail and commercial insurance ...
Related Articles
  1. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  2. Insurance

    How To Easily Understand Your Insurance Contract

    Understanding your insurance contracts can go a long way in making sure that your advisor's recommendations are on track. Learn how to read yours today.
  3. Insurance

    12 Car Insurance Cost-Cutters

    Car insurance rates are on the rise. If car insurance costs are dragging you down, use these tips to free yourself from some of the extra weight.
  4. Insurance

    12 Insurance Questions for High Net Worth Families

    High net worth families should ask themselves these 12 questions regarding comprehensive insurance.
  5. Insurance

    The Importance Of Property Insurance

    Property insurance is important, but there's a lot you need to learn in order to get the proper coverage.
  6. Financial Advisor

    Buying a Life Insurance Policy? Read This First

    Knowing who needs life insurance, how it works and the different types of insurance can help consumers make informed decisions about this product.
  7. Insurance

    Steer Clear of Over-Priced Gap Insurance Providers

    Major insurers will generally give you a better deal on gap insurance than a car dealership. But watch for gaps in gap coverage.
  8. Insurance

    4 Things That Keep You From Getting Life Insurance

    We look at four common reasons people give for not applying for life insurance, and see if they're legitimate.
RELATED FAQS
  1. How does the insurance sector work?

    Learn more about the insurance sector, a historically safe place for equity investors and the home of some of the largest ... Read Answer >>
  2. Can an Insurance Company Deny Coverage?

    Insurance isn't always as straightforward as other products, and insurers can deny coverage in many different instances. ... Read Answer >>
Trading Center