Insurance

INSURANCE - AN EVIL OR A NECCESSITY?

Under a novated lease it is a mandatory finance condition that the leased vehicle is comprehensively insured for the duration of the lease period.

In selecting a comprehensive insurer it is important to understand the underlying lease structure and how charging of interest occurs.

With most financiers, the bulk of the interest component is paid down in the first part of the lease term. That is, with the initial payment the majority of the payment is meeting the interest cost. it can take up to half of the lease term before inroads into the principal amount occurs.

On this basis, Salary Packaging Queensland recommends the best new for old comprehensive insurance policy is taken. Care is needed that any maximum kilometre condition imposed by an insurer is not exceeded, as this may remove the "new for old policy offer" and replace it with a market value policy.

Appropriate "new for old" insurance cover may cost more than "low cost insurers". The benefit of a "new for old" policy is that in the event of a successful claim, there is no financial disadvantage to the insured party.

Other insurances that may be a consideration are:

• GAP Insurance - this type of insurance is designed to cover a payout difference, up to a policy limit, in the event of a total write off of the insured vehicle. That is, the difference between the amount owing to a financier and what the insurer is paying in settlement of a claim.
• If a new car is leased and suitable new for old cover is held, then it may negate the need and cost for additional GAP insurance.
• Loan Protection Insurance - the value of including this type of insurance needs to be assessed based on policy terms & conditions, and personal circumstances of the leasee of the car. Salary Packaging Queensland recommends anyone contemplating this type of insurance to seek independent and professional insurance advice.