Credit Shortfall Insurance (Part 2)

WHY IS THERE A DIFFERENCE ?

Your Insurance Policy

• Your vehicle is insured for current RETAIL VALUE on your insurance policy.

• As you know, the moment your vehicle leaves the dealers floor the Retail Value on the vehicle starts depreciating.

• This depreciation is normally between 7,5% to 15% per annum, depending on a number of factors.

• Effectively this means that even within a very short space of time, your insured value, ie. Retail Value is less than what you paid for it.

Your Finance Contract

• Your Finance Contract includes interest at a certain percentage.

• The moment you sign the contract, interest is added ONTO the purchase price of the vehicle.

• In effect, even if you were to settle the Finance Contract the very next day, the Settlement Figure on the finance would be more than the what you bought the vehicle for.

• As you make your monthly instalments, the settlement figure on the finance contract reduces. HOWEVER… it takes quite a some time before the FINANCE SETTLEMENT AMOUNT reduces enough before it is less than the insured RETAIL VALUE.

Nett Effect

• On the one hand you have interest which is added to the purchase price of the vehicle in terms of the Finance Agreement which gives you the SETTLEMENT AMOUNT.

• (AND ….. the interest is a substantial amount)

• On the other hand you have a Retail Value which keeps reducing / depreciating depending on various market factors.

The difference between the higher finance settlement amount and the lower retail value is called CREDIT SHORTFALL.

NOTE:

Your insurance policy will only pay retail value. You would still be responsible to settle the difference with the bank. In other words, you will be responsible for the CREDIT SHORTFALL.

We believe that the risks faced by each business and each individual is unique. We believe in providing each business, and each of our clients with a comprehensive insurance solution that addresses their own unique and individual risks. Contact us today!