# Liquidation Insurance JPEG'd has designed a novel insurance mechanism that is the first of its kind in DeFi. Only the DAO can conduct liquidations. Users can voluntarily purchase insurance on any of their positions for a **2.5% non-refundable fee** that occurs any time debt is drawn. In the event of liquidation, insured positions will have a **48 hour** **duration** to reclaim their NFT collateral after repaying their outstanding debt and a **5%** liquidation fee. They also have the option to **partially repay** their outstanding debt + the 5% liquidation fee in order to reduce their LTV ratio below the Max LTV and keep the position open. The liquidation fee is based on the user's outstanding debt, which is principal plus any accrued interest. Liquidation insurance can only be enabled when opening a Collateralized Debt Position (CDP). #### **For example**: A user elects to purchase insurance and opens a Collateralized Debt Position for 10,000 PUSd. The 2.5% insurance fee is assessed and he receives 9,750 PUSd. Eventually, the debt on this position grows to be 15,000 PUSd and the user is liquidated due to adverse market conditions. The user must repay the 15,000 PUSd outstanding debt plus a 750 PUSd liquidation fee (5%) back to the DAO. The NFT is unlocked when the debt and the liquidation fee are paid. If the owner does not repay within **48** hours of liquidation, the insurance coverage lapses, and the NFT is now owned by the DAO.