Having the right insurance cover is vital when leasing plant, equipment or heavy trucks, JLT enterprise solutions divisional manager Philip Clauzel cautions.
In the event of total loss, whoever is leasing the asset (lessee) could find the residual contract costs might exceed the sum of the insurance pay-out.
And that could leave an unexpected balance for them to pay back to the leasing provider (lessor).
So it’s important to make sure the insurance cover on the asset is fit for purpose, Clauzel says.
“The key is to have the right insurance policy that provides adequate cover for the gap between the residual costs of the lease agreement and the market value of the heavy vehicle or plant and equipment insured.”
Transport operators must carefully read the details of insurance contracts they are purchasing to insure leased plant, equipment or heavy vehicles, or engage an independent insurance broker who can best match their needs with adequate cover for the circumstance, he says.
Although a high-quality motor vehicle insurance policy will often see full replacement for total loss of passenger and light commercial vehicles under 3500kg (GVM) in the first 12 months of a lease, the same does not always apply to vehicles weighing more than 3500kg (GVM).
In some cases heavy motor policies offered by New Zealand insurers do not provide full replacement for those vehicles aged under 12 months, Clauzel says.
And the lessee will also be required to continue regular monthly payments to the lessor, even if there is a delay in settlement until the insurer makes a final decision about repairing the vehicle or writing it off.
“This process could take up to two months or more during which the lessee is obligated to make payments to the lessor,” Clauzel says.
“However, a loss-of-use cover for a heavy vehicle would provide the customer with an alternative vehicle while the determination is made between repairing or replacing the vehicle under claim.”
Plant and equipment such as fork-hoists and cranes and other construction equipment under lease agreements can also face similar issues and need to be covered by a quality material damage insurance policy, he says.
“A quality material damage insurance policy will provide replacement value, subject to depreciation, but again we may find the same scenario where the residual cost of the lease is greater than the insurance payout for a total loss.”
