credit insurance definition Introduction
Credit Insurance is an insurance tool devised for business/organizations to cover risk against unpaid debts in trade and employment. Such policies are quite useful for the traders who sell goods and services on credit to the buyers, overseas or domestic. While most of the policies cover risk of overseas credit there are some that include domestic credit cover as well. Other than trade credit, Credit Insurance includes several other covers that include protection to family of the insured for unpaid liability in case of demise of the policy holder. This is covered in Life Insurance Plans. For some other insurers, Credit Life Insurance includes the fidelity cover to the employer against an act of fraud or dishonesty in the employment.
types of credit insurance
Major Credit Insurance Policies
The Policies as provided by leading insurers can be categorized into following types.
(export ) Trade Credit Insurance
trade credit insurance definition:
Trade Credit Insurance is a tool that helps traders to expand their business with least risk of credit. Trade Credit Insurance is the most popular policy covered by several private insurers for the benefit of traders and exporters.
Credit Life Insurance companies Chief Insurers
ICICI Lombard, TATA AIG, and IFFCO Tokio
While most of the insurers provide Insurance for Exporters, TATA AIG covers the Credit Life Insurance for domestic traders also.
Scope and Coverage
Trade Credit Insurance Policy covers trade credit risks elaborated as under
· Non- payment by the buyer (Protracted Default)
· Insolvency of the buyer
· Military or civil war, revolution, riot or insurrection
· General moratorium on payment by the buyer’s country
· Cancellation of import license
· Govt. decision preventing performance
· Political events, economic difficulties, legislative or administrative measures affecting payment.
· Non-payment by Government Buyer.
What is not covered by Trade Credit Insurance?
· Non- payment arising due to trade dispute
· Sales to private individual intending to use goods/ services for non-professional use
· Sales to an associate company (conditions apply)
· Contracts where payment is received in advance
· Sales under irrevocable and confirmed Letter of Credit
· Loss due to foreign currency fluctuations
· Nuclear Risks
· War between traders’ countries
Premium Calculation under Credit Life Insurance
The premium rate is consider in % age and calculate on basis of insure turnover. Relevant factors that decide premium rate are
· Extent of coverage sought
· 70%/ 80%/ 90% of the individual bill
· Risk rating of business sectors
· Countries included in the portfolio
· Insured Turnover
· Trade losses of the Insured
Mortgage Redemption or Credit Assurance covered by Life Insurance Companies
Such a policy helps professionals ensure that their family lives debt free after his sudden or unexpected demise. The policy holder’s outstanding debts are automatically paid off in the event of Death. LIC and SBI Life cover such insurance in their Individual and Group Insurance Plans.
Credit Insurance against Fraudulent Employees
United India Insurance Company’s Credit Insurance Policy covers the risk of financial loss sustained by the Insured due to any act of fraud or dishonesty of the employee in connection with employment/ occupation and his duties.
· Consequential Loss is not covered
· After the Death Dismissal Resignation or Retirement of the employee or within 12 months after expiry of the policy whichever shall first occur.
· Any suppression misstatement of the facts affecting the risk at the time of taking up the policy
· The company shall not be liable to pay more than one claim in respect of the act of any one of the employee.