Residual Value Insurance: accelerate earnings to enhance financials
As a lessor, you need tools to help you manage your business throughout the leasing cycle. Residual Value Insurance is available to help you in two important ways.
Upfront accounting treatment to record lease income sooner
You can account for your operating lease as a finance lease using this insurance as a viable third-party guarantee of the residual value. For operating leases, income is accounted for over the term of the lease; however, for finance leases, income is greater at the beginning of the lease, accelerating your earnings position.
Compliance with regulations on residual value risk at termination
If you are a bank leasing equipment in Canada, you are limited by regulations to take no more than 10% residual risk on your portfolio, or no more than a 25% residual risk position per lease.
Depending on your specific circumstances, Residual Value Insurance can help you comply with Canadian regulations by transferring some risk to the insurer. This reduces your amount of residual risk that can occur at lease termination when the actual equipment value falls short of the agreed-upon value.