Shortfall Cover

Buying a fancy car. Wearing flashy clothes and a lot of jewelry. Let's face it: those people are covering for some kind of shortfall.

But in the business world, the term "shortfall cover" applies to a type of reinsurance. Insurance companies look to lower their risk levels by using reinsurance. Basically, they insure their own insurance, buying a policy from an outside firm that covers at least part of the risk the firm has taken on by selling policies to clients.

A shortfall cover is designed to step in if the reinsurance policy proves insufficient in an emergency. It's a backstop for the reinsurance backstop...an extra layer of protection. Like wearing a belt and suspenders at the same time.

The term "shortfall cover" also comes up in consumer insurance, i.e. the type of policies you might buy in your regular life. They cover gaps in coverage on your main policy. Like...you might have an auto policy with a deductible of $1,000. You could get another policy (as shortfall cover) to take care of the $1,000 if an accident takes place and you can't afford the deductible.