Credit Insurance
A credit insurance policy is a policy which covers the credit risk faced by businesses. If businesses have debtors and the debtors are unable to clear their dues due to death, disability or insolvency, the credit insurance policy pays the outstanding dues and helps businesses generate revenue. These policies, therefore, protect businesses from bad debts having an adverse impact on their profitability.
Types of credit insurance policies
Credit insurance is a type of insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or in rare cases, unemployment. Credit insurance policies can be taken by businesses and well as by individuals availing a loan.
Need for Credit Insurance
Businesses and companies of all sizes – small, medium, or large, irrespective of size – need a safety net to manage their financial risks arising due to customer defaults. This can be done by availing credit insurance that provides the requisite safety, security, and peace of mind to grow and expand the business.
Credit Insurance covers are of the following types –
- Credit life insurance
Under this policy, credit risk due to the death of the debtor is covered. If the debtor dies before paying off his debts, the policy would pay the outstanding debt. - Credit disability insurance
If the debtor becomes disabled due to which repayment of the debts is not possible, the policy would cover the repayment. - Credit involuntary employment insurance
If the debtor becomes unemployed and loses his source of income he might not be able to repay his liability. The policy would cover such contingencies and pay the debt on the debtor’s behalf. - Credit property insurance
Under this policy, the property which is mortgaged against the debt is protected from theft, damage or any other type of loss. - Trade credit insurance
This policy is specifically designed for businesses and protects businesses from bad debts due to non-payment by debtors
What it covers?
Credit insurance policies cover two main types of risks which are classified as commercial and political risks. Here’s what these risks include –
- Commercial risks
Commercial risks include insolvency or bankruptcy of the buyer as well as non-payment of dues by the buyer. - Political risks
Political risks are risks faced due to political circumstances like the following –- Cancelling of the import license
- War, riots, revolution, rebellion, etc.
- Any Government decision which prevents payment of dues
- A general moratorium (repayment holiday) granted by the Government of the debtor’s country
- Any type of political events which do not allow payment of dues
- Non-payment by the Government who is the buyer
- Non-payment because of natural calamities in the buyer’s city or country
What is not covered?
Credit insurance policies do not cover repayment defaults due to the following instances –
- Trade disputes
- Sale to an individual using the goods and services for non-professional work
- If payments have been received in advance
- Loss because of fluctuations in foreign currency exchange rates
- Nuclear perils
- Sales done under irrevocable Letter of Credit
- When the goods are not accepted by the buyer
For registration of claims and to learn more about our claims process please Contact our dedicated claims team for advice on an incident/claim.