Credit insurance is an insurance policy provided by private insurance firms and also government export credit bureau. This is insurance where a borrower pays to repay one or more existing debts in the incident of death, disability, or rarely unemployment. Financial security is an important agenda for most entrepreneurs.
Types of Credit Insurance
Credit Life Insurance is a type that pays off all outstanding loans and debt in case of death.
Credit Disability Insurance pays the lender a monthly benefit equal to the minimum monthly loan payment if you have a disability. Normal waiting time for credit disability insurance is 14 and 30 days
Credit Unemployment Insurance, If you are unemployed involuntarily, this insurance pays the lender directly a monthly benefit equal to the payment of a minimum monthly loan. You must be unemployed for a certain number of days before the benefits are paid.
Pros and Cons of Credit Insurance
Security of Cash Flow
Unless you request prepayment, your customers may not be able to process payments for the products and services offered. Credit insurance assists you to keep your cash flow secured through keeping your business safe from default payments.
Minimise Bad Debt
Credit insurance protects you from spillover effects when you don’t receive payments from customers, which can lead to bankruptcy.
Confidence To Sell In New Markets
Export credit insurance ensures protection of your business against risk of unpaid invoices. You can leverage the underwriter’s market and insights to test new products and explore new sectors and regions while minimizing risk.
Credit insurance can be expensive due to the nature of the insured. This is usually the factor that determines whether a company buys credit insurance.
Not All Businesses Are Insurable
Not all companies have insurance, this means that only part of your company’s sales book may be covered. This can be daunting, especially if the largest customers fall into the “uninsured” column.
It may be wiser to consider the insurance you have whether it is a sufficient TP to cover your lose without taking out credit insurance. Credit insurance can act as a safe deposit box for credit cardholders during difficult and hard financially struggling times.