Residual Value Insurance (RVI)

Organisations acquiring or re-financing significant physical assets can use residual value insurance to guarantee the asset value at a specified time in the future. This means it’s possible to protect against variations in the market value of the asset and bring accounting certainty to the balance sheet.

How can residual value insurance help?

As well as benefiting companies acquiring or re-financing physical assets, RVI can help organisations providing finance for the purchase of assets by removing asset risk from the transaction – and the organisation’s balance sheet. RVI is also often used to increase the final or 'balloon' payment made at the end of a finance period, therefore reducing cost, increasing cash flows and supporting higher debt to equity ratios.

Residual value insurance and financing structures

Financing structures such as operating leases, sale and lease back or credit tenant leases are often supported by RVI. There are many other financial structures that can benefit from such a reduction in asset risk, making RVI an interesting option to explore.

What does residual value insurance cover?

While technically it’s possible to provide RVI for any asset whose future market value can be accurately assessed, the most common assets insured are:

commercial aircraft
shipping
commercial real estate
commercial vehicles
plant and machinery

When can residual value insurance cover be provided?

The point at which cover can be provided may be as much as 30 years out for commercial property, 10 years for ships and aircraft and five to seven years or less for other asset types. The precise period will typically be determined by the: