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Is Shortfall Cover Insurance Worth the Extra Money?


The world of car insurance is complex, and it’s constantly evolving to better suit the needs of the modern car owner. Policy additions and optional coverage now allow vehicle owners to customize the perfect set of insurance coverage for their unique situation—and in some cases, get covered for events that would have previously gone uncovered.

More than 107 million Americans now have car loans, representing about 43 percent of the population. And for many people, this is a good thing—it means they’re able to get a reliable car sooner, while making affordable payments in the meantime. But if that car is stolen, damaged, or destroyed before those payments are fully made, it can be a nightmare for the owner.

That’s where shortfall cover comes in—put simply, it’s a policy designed to protect you, in case your car is stolen or written off in an accident. But is it worth the extra money you’ll pay to get it?

What Is Shortfall Cover?

Let’s take a more thorough look into what shortfall cover is. For starters, shortfall cover is an optional addition to your comprehensive car insurance policy, and it’s usually available for a small extra fee. The basic idea is that shortfall coverage will insure the difference between what your car is inherently worth and what you still owe on it after your insurer has paid out the value of your car.

So let’s say you’ve purchased a car for $15,000, but your insurance is only covering it for $8,000 due to depreciation and other factors. You still owe $10,000 on the loan, meaning the $8,000 payment you get from the insurance company is going to leave you owing $2,000 on your loan—all with no car to get you from point A to point B. Depending on the type of shortfall cover you get, your policy would likely cover the additional $2,000 you owe, and possibly even more.

Do You Need Shortfall Cover?

So do you need to have shortfall cover?

For starters, you should know in most areas, shortfall cover isn’t considered “necessary” insurance coverage. Minimum car insurance usually requires you to cover damage to other vehicles, property damage, bodily harm, and liability—it doesn’t necessitate that you have coverage to protect the difference between your insurance payout and what you owe on your car loan.

Also, if you’ve paid for your car outright, or if you no longer owe money on your vehicle through a lending agency, shortfall cover will do nothing for you.

Factors to Consider

Shortfall cover isn’t mandatory, and if you don’t owe any money on your vehicle, you shouldn’t bother with it. But what about people who do owe money on their vehicle? Should they consider shortfall cover, and is it worth the money?

Consider these variables:

  • How much money do you owe on your car? Think about how much you still owe on your car. In general, the more money you owe on your car, the more important shortfall cover is going to be. If you only have a few payments remaining, shortfall insurance may not be worth it.
  • How financially secure are you? Also think about how financially stable you are. Do you have a few thousand dollars stored in an emergency fund? If you can easily cover the difference between what your insurance will pay and the remaining amount you owe to your lender, shortfall insurance may not make sense. If you’re struggling to make ends meet, it may be a practical necessity.
  • How much would your insurance policy pay for a totaled or stolen car? Check your current insurance policy to see how much your car is valued at. Run a few hypothetical scenarios and see how much you would get if your car was stolen or totaled. If those projected payments are reliably lower than the amount you still owe on your car loan, shortfall insurance is definitely a wise decision.
  • How much is shortfall cover with your current company? Finally, ask your insurance provider how much it would be to add shortfall cover to your current comprehensive car insurance policy. Oftentimes, insurance providers will be able to offer shortfall coverage for a small additional monthly fee. If you feel they’re charging too much, you can always get new quotes from competitors to ballpark the going rate, and switch when you find a better deal.

If you still owe a significant amount on your vehicle, shortfall cover is often worth the extra money, especially since it usually adds a negligible amount to your car insurance premiums. That way, you’ll have peace of mind, knowing that you won’t be left with loan payments even after your vehicle is totaled, stolen, or significantly damaged.

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