What is Credit Insurance?

Credit insurance is a crucial protective solution that shields your company from the risks associated with customer defaults. Essentially, it provides coverage for sales made on credit terms, safeguarding your business against financial losses caused by customer insolvency.

In the complex ecosystem of business transactions, credit insurance plays a vital role in mitigating risks and ensuring the smooth operation of your trading cycle. Unpaid invoices can significantly impact a company's financial stability. By implementing a credit insurance policy, you can proactively protect your profit margins, cash flows, sales growth, balance sheet, and customer base.

With credit insurance in place, your business gains a safeguard against potential losses incurred due to unpaid invoices and customer insolvencies. This enables you to focus on your core operations while minimizing the financial risks associated with extending credit to buyers. Moreover, credit insurance facilitates sales growth by providing a secure foundation for developing new buyer relationships, expanding into new markets, and confidently offering credit terms to your customers.

Types of Credit Insurance Plans

In India, Policypoint offers a range of Credit Insurance options to safeguard businesses and individuals from various credit risks. Here are the five types of Credit Insurance available:

 

Credit Life Insurance

Our Credit Life Insurance policy provides protection against credit risk resulting from unfortunate events such as death. In the event of your demise, this policy repays your existing debts on your behalf, ensuring that your loved ones are not burdened with the financial responsibility.

 

Credit Property Insurance

With our Credit Property Insurance, you can protect the property you have used as collateral against your debts. This coverage safeguards your property from risks such as theft, damage, or natural disasters, ensuring its security and preserving your financial interests.

Trade Credit Insurance

Tailored specifically for businesses involved in selling goods or services on credit, our Trade Credit Insurance offers protection against bad debts arising from non-payment by customers. This coverage mitigates the financial impact of defaulting customers, safeguarding your cash flow and ensuring the sustainability of your business operations. It is important to note that Trade Credit Insurance is distinct from consumer credit insurance designed for individuals.

At Policypoint, we understand the diverse credit risks faced by businesses and individuals, and our comprehensive Credit Insurance policies are designed to provide effective protection.

 

Coverage

A Credit Insurance Policy provides coverage to businesses against the risk of non-payment arising from various factors. Here are the key elements covered under a comprehensive Credit Insurance Policy:

Insolvency

This aspect of the policy offers protection in the event that a customer becomes insolvent and is unable to fulfill their payment obligations. Insolvency can result from bankruptcy, liquidation, or similar circumstances, and the policy ensures that your business is safeguarded against financial losses arising from such situations.

Political Risk

Credit Insurance Policies may also include coverage for political risks, which arise from factors such as currency inconvertibility, war, import and export restrictions, or license cancellations due to government decisions. It provides protection in cases where non-payment is due to political reasons beyond the control of the buyer or seller. It's important to note that coverage for political risks is typically applicable to international transactions and may not extend to domestic transactions.

By obtaining a Credit Insurance Policy, your business gains valuable protection against the risk of non-payment, ensuring financial stability and minimizing the impact of unforeseen events. At Policypoint, our insurance solutions are designed to provide comprehensive coverage tailored to your specific needs, empowering you to confidently engage in credit transactions while mitigating associated risks.

Exclusions

While a Credit Insurance Policy provides comprehensive coverage against non-payment risks, it's important to be aware of the major exclusions that may apply. These exclusions typically include:

 

Disputes with the Buyer

Losses resulting from disputes between the insured and the buyer that lead to the withholding of partial or full payment may not be covered under the policy. It's important to strive for a clear understanding and resolution of any payment-related disagreements to mitigate the risk of such exclusions.

Defaulting Customer as a Government Department

If the defaulting customer is a department of the State or Central government, the policy may not provide coverage. This exclusion is in place due to the unique dynamics and regulations surrounding government entities.

 

Dispute Resolution Costs

The policy may not cover the costs incurred to resolve disputes between the buyer and the insurer. It is essential to be aware of any potential expenses associated with dispute resolution and seek appropriate advice or alternative mechanisms to address such situations.

Exceeding Approved Credit Limit

Coverage under the policy is typically limited to the approved credit limit for a customer. Any losses exceeding this credit limit may not be covered, highlighting the importance of careful credit management and staying within approved limits.

Prior and Pending Actions/Claims

Losses arising from prior or pending actions or claims may be excluded from the policy coverage. It's crucial to have a clear understanding of the timeframe and circumstances to ensure adequate protection for your business.

It's important to note that policy wordings may vary among insurers, and it is essential to carefully review the specific coverage and exclusions offered in the context of your company's operations. Understanding the terms, conditions, and exclusions in the policy is vital to make informed decisions about your credit risk management strategies.

Please note that the details provided above serve as a summary of policy features and do not encompass all terms, conditions, and exclusions in the policy. The final policy, issued upon binding the cover, represents the legal contract between the insured and the insurer. To obtain comprehensive information and tailor-made solutions, we encourage you to get in touch with our representative. They will provide you with detailed insights and address any specific queries you may have.