Credit Insurance
Credit Insurance is an insurance policy associated with a specific loan or line of credit which pays back some or all of any monies owed should certain things happen to the borrower, such as death, disability, or unemployment.
Credit insurance comes in a variety of forms. Typical credit insurance coverage’s include credit life, credit disability, involuntary unemployment, and credit property insurance.
Credit Insurance is an insurance policy associated with a specific loan or line of credit which pays back some or all of any monies owed should certain things happen to the borrower, such as death, disability, or unemployment. Typical credit insurance coverage’s include credit life, credit disability, involuntary unemployment, and credit property insurance.
Credit Insurance is purchased by corporations to insure their accounts receivable from loss due to the insolvency of the debtors. Credit Life Insurance is a consumer purchase, often sold with a big ticket purchase such as an automobile. The insurance will pay off the loan balance in the event of the death or the disability of the borrower. Although purchased by the consumer/borrower, the benefit payment goes to the company financing the purchase.
There are three types of Credit Insurance Credit Life InsuranceCredit Disability Insurance
Credit Life Insurance:
Credit Life Insurance is a type of life insurance that effectively pays off the debt you owe on a credit account or mortgage in the event of your death.
Credit Disability Insurance:
Credit Disability Insurance helps to secure your favorable credit rating by covering your minimum monthly credit account payment during a period of documented medical disability.
Involuntary Unemployment Insurance:
Involuntary Unemployment Insurance, like credit disability insurance, makes your minimum monthly credit account payment during a period of involuntary unemployment, such as a layoff or downsizing. The limitations noted with credit disability insurance as defined above are also applicable to involuntary unemployment insurance. Credit Property InsuranceCredit Property Insurance cancels the debt you owe on items purchased on an insured credit account if the property purchased is destroyed by specific named perils such as an accident, theft, flood, or earthquake. Unlike most property insurance, you do not have to pay a deductible up-front when submitting a claim. Deductibles are not used in credit property insurance.
Credit insurance covers the risk of fortuitous loss.
You will be expected to evaluate that your customer exists and is creditworthy. This might be by using a credit limit service provided by the insurer. A credit limit will need to be set, and adhered to. This applies even if your customer is a government entity.
While the credit insurer underwrites the risk of non-payment and contract frustration, the nature of the risk is affected by how it is managed. The credit insurer is likely to pay attention to your credit management procedures, and require that agreed procedures manuals are followed at all times.
- The credit insurer will expect your contracts to be written effectively and invoices to be clear.
- You will be required to report any overdoes or other problems in a timely fashion
- The credit insurer may have other exposures on the same buyers or in the same markets as yours. You will therefore benefit if other policyholders report that your potential customer is in financial difficulties.
- You will need to pay premium. There may be additional charges for policy administration.
- In the event that the customer does not pay, or cannot pay, the policy reacts. There may be a waiting period to allow you to start collection procedures, and to resolve any quality disputes.
- Most credit insurers contribute to legal costs, including where early action produces a full recovery and avoids a claim.