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Shortfall Insurance - Explainer

As part of our wider financial services portfolio, Jade Finance provides advice, assistance and support to our customers across a range of insurance issues.

We provide this general explanation in regard to shortfall insurance and invite you to direct specific questions to your Jade Finance consultant.

  • Shortfall insurance is also known as credit shortfall insurance and gap insurance.
  • It is a type of insurance policy designed to provide insurance coverage for the ‘gap’ or difference which may exist between the value of the asset (boat, car, caravan, equipment, motorbike) as determined on your insurance policy for that asset and the purchase price that you have paid for the asset or the total amount of your loan for that asset.
  • Essentially, it is insurance coverage for situations when you owe more on the car, bike, caravan, boat or equipment than it is deemed to be worth.
  • When arranging your loan, your Jade consultant will structure your loan based on the cheapest interest rates and provide you with the best loan deal available. You will be given the details on the variations in paying off the loan over different time periods and with different monthly repayments.
  • However, if you choose a long loan term for say a car, ie over the usual 4 or 5 years or you choose to include a large percentage in the balloon, over the term of the loan, the market value of the car as agreed in your car insurance policy will likely be less than you still owe on your car loan.
  • Shortfall insurance covers that gap against the asset being written off in an accident or stolen, depending on the set conditions of the policy.
  • In the event of the asset being written off or stolen for instance, your standard insurance policy insurer will pay their agreed value to the lender and the insurer handling your shortfall insurance will pay the gap between that agreed value and what you ow to the lender. The objective being you not being out of pocket under such circumstances.
  • This type of policy is different from say an extended warranty on a car or boat which covers repairs of defects under a set of circumstances.
  • Deciding if you need shortfall insurance involves a range of considerations including your initial financial decisions in regard to the purchase of that asset. Your Jade consultants are highly trained professionals and we strongly encourage our customers to heed their expert advice in regard to all aspects of loan terms and repayment levels.
  • To avoid the need for shortfall insurance, you may consider your financial decision-making and your buying behaviour in regard to negotiating more successfully on the purchase of major assets. You may also consider paying a deposit for the asset to reduce the total amount borrowed and bring the value of the goods over time in better alignment with the amount owed.

As with all financial decisions, you should carefully consider all aspects of shortfall insurance closely to ensure you fully understand this specialty insurance product.

For more information on shortfall insurance, speak with a Jade Finance Consultant. Call 1300 000 003

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