Vendor’s Single Interest (VSI) insurance, also known as Lender's Single Interest (LSI) insurance, is a blanket insurance solution designed to protect lender's financial interest in financed collateral if an uninsured vehicle is damaged or destroyed.
Unlike insurance tracking programs that monitor coverage on individual loans, VSI insurance generally provides blanket coverage across a lender's eligible loan portfolio. This can help protect against uninsured physical damage, theft, and other losses while reducing the administrative burden associated with monitoring individual borrower insurance policies.
Below, we break down how VSI insurance works, what it can cover, the types of collateral that may be eligible, and what lenders should consider when evaluating a VSI insurance program.
WHAT DOES VSI INSURANCE COVER?
VSI insurance is a blanket lender's single interest insurance policy that can provide protection across eligible loan portfolio without requiring insurance tracking on each individual loan.
Depending on policy selected, VSI insurance may provide coverage when financed collateral is damaged or stolen while uninsured, including losses that occur before or after repossession. Certain policies may also provide protection when collateral cannot be located or when issues with a lien or title prevent a lender from recovering its interest.
Coverage can be customized based on the lender's portfolio and risk needs, but common VSI insurance coverage options may include:
- Uninsured damage or theft: Provides protection when required insurance has lapsed and financed collateral is damaged or stolen.
- Skip coverage: Provides protection when the borrower and financed collateral cannot be located.
- Security interest non-filing: When a lender cannot repossess because of a defect in the title or lien registration.
- Superior lien issues: Often caused by errors or omissions in the lien and title records, either by your staff or the DMV.
- Mechanic lien costs: Pays repairs and storage charges owed to repair shops, etc.
- Repossession coverage: Covers uninsured damage or theft post-repo.
VSI comprehensive coverage can apply to both consumer collateral and commercial equipment and vehicle loans.
WHAT ARE THE BENEFITS OF VSI INSURANCE?
VSI insurance provides the ability to protect an eligible loan portfolio without monitoring insurance coverage on every individual loan. For financial institutions, a VSI program may help:
- Reduce losses and charge-offs for an entire portfolio
- Eliminate or reduce the need for individual tracking, which can be time-consuming and require strong attention to detail.
- Protect a broader portfolio through blanket coverage
- Reduce administrative demands on internal teams
- Provide a predictable approach to managing uninsured collateral risk
Depending on applicable state laws and program structure, lenders may also be able to disclose and pass the cost of VSI insurance to borrowers. Because VSI premiums can be assessed when a loan is originated, lenders may also avoid some of the collection challenges associated with premiums added after a borrower’s insurance has lapsed.
WHAT TYPES OF CONSUMER LOANS ARE COVERED BY VSI POLICIES?
VSI policies protect a broad range of loans. Lee & Mason offers VSI insurance policies that cover the following types of consumer loans and lease collateral:
- Cars, vans, light trucks
- Motorcycles, ATVs, and snowmobiles
- Watercrafts, including jet skis
- Recreational vehicles, mobile homes (not real estate)
- Optional: Commercial vehicles and equipment
VSI INSURANCE VS. LENDER’S SINGLE INTEREST INSURANCE: WHAT’S THE DIFFERENCE?
VSI insurance and Lender’s Single Interest (LSI) insurance are closely related terms and are sometimes used interchangeably within the lending industry.
Both are designed to protect the lender’s financial interest in collateral securing a loan rather than providing traditional auto insurance coverage for the borrower.
The terminology and specific coverage available can vary by program, which is why lenders should evaluate the policy terms, covered collateral and potential exclusions when selecting an LSI or VSI insurance solution.
IS VSI INSURANCE RIGHT FOR YOUR LOAN PORTFOLIO?
The right approach depends on the size and composition of your portfolio, your institution’s risk tolerance and how your team currently manages borrower insurance requirements.
For lenders looking to reduce uninsured collateral exposure without individually tracking insurance on every loan, a blanket LSI/VSI program can offer an alternative approach to managing risk.
LEARN MORE ABOUT VSI INSURANCE FROM LEE & MASON
Lee & Mason has decades of experience helping financial institutions protect their auto and consumer lending portfolios. Our VSI insurance programs can be tailored to a lender’s portfolio and risk-management needs, allowing institutions to select the protection that makes sense for their business without paying for unnecessary coverage.
Learn more about Lee & Mason’s Blanket Lender’s Single Interest/VSI Insurance solutions or contact our team to discuss coverage options for your loan portfolio.