The Role of Insurance in Equipment Financing

Insurance serves as a financial safeguard that protects an equipment owner in the event of damage, loss, or accidents, so proper coverage is vital. In the case of equipment that is financed, insurance protects both the lender and the borrower throughout the loan period.

In this blog, we’ll break down the essential insurance requirements, how insurance affects the financing process, and other factors to keep in mind.

Understanding Insurance Requirements for Equipment Loans

Lenders typically require specific types of insurance before funding an equipment loan. These policies protect the asset, reducing financial risk for both the borrower and the lender. The most common types of insurance include:

• All-Risk Coverage: a comprehensive policy that protects the insured asset against various perils such as theft, loss, natural disasters, and more.
• Liability Insurance: this insurance covers claims related to bodily injury, property damage, or other liabilities arising from the use of the equipment. This type of coverage is critical if your new equipment is acquired through an equipment lease agreement.
• Property Insurance for Titled Equipment: This insurance is needed for vehicles and other titled assets and covers losses from theft, loss, physical damage due to accident or natural disasters, and more.
• Insurance may also provide coverage for loss of use of the equipment or for business interruption.

Most lenders will require either All Risk or Property Coverage as well as liability coverage. You should speak with your lender about which type of coverage they require for the specific type of equipment you’re looking to buy.

How Equipment Insurance Protects Your Investment

Equipment insurance provides a financial safety net for both borrowers and lenders so you are protected from:

• Collision Damage: Covers repair or replacement costs if the equipment is involved in an accident.
• Liability: Shields owners from financial repercussions if the equipment causes injury or property damage.
• Comprehensive Events: Protects against non-collision risks such as theft, vandalism, and weather-related damage.

By maintaining proper coverage, borrowers can avoid costly out-of-pocket expenses.

How Insurance Affects the Financing Process

Waiting for your insurance broker to place insurance is often the number one contributor to delaying the funding of your equipment loan. That’s why it’s important to source insurance coverage early in the financing process.

No lender will finance equipment without insurance coverage.

In addition, lenders can be particular about how certain endorsements to your policy are worded.

A couple of important notes:

1. The name of the insured party on the insurance policy must match the name of the borrower on the loan agreement.
2. The equipment description on the insurance policy should match the equipment description on the loan documentation.
3. Your Lender should be listed as “Additional Insured” and “Loss Payee”

The value of your financed equipment and the nature of your business operations primarily determine the cost of insurance. Higher-value equipment requires more coverage, leading to higher premium costs. Planning these expenses allows borrowers to manage their budgets effectively and avoid unexpected financial strain.

Updating Insurance Coverage When Equipment Changes

Insurance policies should be updated whenever changes to the financed assets occur. You should also communicate with your lender whenever a change in your policy is going to occur. Some key times to adjust coverage include:

• Upgrading or modifying equipment
• Selling or refinancing equipment - ensuring the correct lender is listed on the policy
• Changing insurance providers - lenders must be notified to avoid policy gaps

Providing updated insurance details ensures compliance with loan terms and prevents potential financing issues.

If borrowers fail to maintain the required insurance, they are exposed to financial penalties such as increased interest rates, or loan default.

At Keystone, we understand that equipment insurance is more than just a loan requirement—it’s a vital step in protecting your business. As a trusted resource for equipment owners, we provide essential insights so you can secure the right coverage, avoid financing delays, and minimize risks.

Stay informed and proactive about insurance to ensure smooth operations, financial security, and peace of mind for your business.