When taking out a loan or finance, borrowers also need to consider insurance. Most of the loans and finance arranged through Jade Finance are on a secured loan or finance basis. This includes our personal loan categories - Secured Car Loans, Secured Motorcycle Loans, Secured Boat Loans and Secured Caravan Loans business finance - Chattel Mortgage, Leasing, Rent-to-Own and Commercial Hire Purchase for the acquisition of trucks and business equipment.
Secured loans mean the loan is secured against the asset, vehicle or goods being purchased. This is security for the lender. The asset or goods are used as security against the funds loaned. If the borrower defaults on the loan, the lender has the right to repossess the goods and sell them to recoup the monies owed to them.
Lenders of secured finance require the borrower to take out insurance on the goods or assets being financed. Insurance coverage of the goods provides security both for the lender and for the borrower, you! If the goods are stolen or damaged or written-off, the insurance policy is in place with the objective of covering your obligations, depending on the specific coverage and conditions of the policy.
The objective being that a claim can be made against the insurance policy and the borrower can payout what is owed on the loan. If the policy is for an amount greater than what is owed, the borrower would receive the balance.
We’re talking insurance for the asset or goods not insurance for yourself in the event you are unable to meet your repayment obligations. An insurance policy which covers your repayments in the event you are unable to do so is known as Loan Protection Insurance and is not a compulsory requirement when taking out finance.
Unsecured loans as the name implies are not secured against the value of the asset and as such, insurance may not be requested by the lender. However, many borrowers will still want the certainty, security and peace of mind that an insurance policy offers and will also insure their goods.
Types of Insurance Policies
Insurance is a very large sector of the financial services industry with many insurers offering a wide range of insurance policies. The specific inclusions or exclusions should be considered closely when comparing insurance policies to ensure you know what you are covered for.
Specialist insurers provide policies for specialist areas such as Club Marine as a specialist boat insurer. Large companies may take out a fleet policy to cover all their vehicles, trucks and equipment in the one policy.
Here are a few tips of what to keep in mind:-
- What will the policy cover and what won’t it cover
- Lenders will require the policy to cover theft and damage
- Source of damage – storm and tempest can be treated differently from natural disasters and flood damage in some cases.
- Location – are you covered only when garaged at registered place of garaging or at a separate place.
- Is coverage for on the road and when garaged
- Do you require coverage only for the asset or asset and contents
- Lenders will only be interested in protecting their asset, not your contents
- If you added optional extras at time of purchase or after-purchase, these may need to be added to the policy
- Some insurers require certain items/accessories or features to be itemised or specifically noted on a policy
- Policies can be arranged at an agreed value or market value or for a fixed amount
Your Jade Finance consultant can assist by advising what type of insurance policy with what inclusions you will need to meet the lender conditions of your particular loan type.
Car Loans, Motor Vehicle Finance and Motorcycle Loans
A comprehensive insurance policy will be required which is different from CTP – compulsory third part policy. CTP is a required under law and must be acquired to enable a vehicle to be registered. It only covers damage to people (third parties) it does not cover your vehicle.
Any modifications carried out to a vehicle may impact the insurance policy. If carrying out modifications, contact both lender and insurer to check the details for your specific loan and policy.
You will be required to take out a policy for the vehicle but an optional extra can be to cover the contents of the vehicle also.
If a prime mover and trailer have been financed in the same loan, both assets will require a comprehensive insurance policy. These may require different types of policies dependent on application and usage.
Boat Loans and Marine Finance
If you’ve included both trailer and boat in your boat loan, insurance would be required on both items.
Marine insurance is quite specialised with a range of coverage options to consider. Speak with both lender and insurer to find out what is compulsory and what you may like to voluntarily include.
Enquire as to the level of insurance in regard to inclusions required by the lender. Then consider what contents and other conditions you may like to include in your policy.
The type of equipment may determine the extent of insurance coverage you would like for your equipment. Lenders will have key minimum policy requirements but operators may choose to expand coverage to include scenarios when the equipment is not operational.
Sourcing and Selecting Insurance
When purchasing goods and assets under finance, it is advisable to source quotes on insurance at the same time. Not only will you be able to factor that cost into your budget, you will be better placed to expedite settlement. Lenders will not finalise a loan settlement and hence allow a borrower to take possession of goods or asset until an insurance policy is arranged. Having done your homework you can speed up this stage.
Insurers usually offer a cover note which is an insurance policy for a short time. This allows buyers the time to fully explore their insurance policy options and secure a policy while taking possession of and having use of the goods/assets.
For many sectors, the cost of insurance policies can vary significantly. This is a highly competitive area of the financial services industry and people should look around to find not only the cheapest policy but the policy that meets their requirements. Cheap may appear preferable but if the exclusions don’t meet your expectations, it may not be the best policy.
Many insurers allow part-payments or monthly payments for premiums which can spread the cost to suit your budget. With large insurance premiums on assets such as trucks and some equipment, if businesses can discuss Insurance Premium Funding through Jade Finance.
Over the term of your finance or loan, finance companies will require you to advise them each year, on the anniversary of the acquisition, that the insurance policy has been renewed in line with the conditions of the finance contract.
For complex insurance policies or for those that do not feel knowledgeable to analyse and source a policy, insurance brokers can be engaged to source the policy for you. We have connections with brokers that can assist, so please speak with one of our consultants.
That’s a quick overview of insurance in relation to loans and finance. For more information and for referrals to insurance brokers, please get in touch.
To discuss the insurance requirements of your proposed finance, contact Jade Finance Call 1300 000 008
DISCLAIMER: THIS ARTICLE IS PREPARED AND POSTED WITH THE INTENTION OF PROVIDING GENERAL INFORMATION AND NOT WITH THE INTENTION THAT IT BE THE ONLY SOURCE OF INFORMATIONON WHICH TO MAKE FINANCIAL DECISIONS. THOSE REQUIRING FINANCIAL ADVICE AROUND THEIR INDIVIDUAL SITUATIONS SHOULD REFER TO A FINANCIAL ADVISOR. NO LIABILITY IS ACCEPT FOR ANY MISREPRESENTATIONS OR ERRORS IN THE CONTACT AS SOURCED, IN GOOD FAITH, FROM A RANGE OF SOURCES.