Credit insurance covers the interests of the insured in case of default by the borrower or dishonesty (deliberate non-payment) and the potential loss of the creditor might suffer. These are universally known as payment protection insurance or insurance against credit defaults.
After the contract stipulated risk occurs, the insurer agrees in the contract of insurance premium to compensate for their insured losses, according to the agreed amount of damages. The short-term credit is derived from the elements in the supply of goods from one company to another or the provision of services and payment for a period of time (usually 30-180 days).
Commercial risks primarily include the buyer’s insolvency (bankruptcy). In addition, significant risk factors are changes in foreign exchange transactions, as well as others who have a negative impact on trade relations.
Political Risk factors include political instability, mass strikes, a coup d’etat, which are not covered by the action of government to declare a ban (but one) or suspension of exports, imports, and other commercial activities.
Any company that offers a product or service to account, must be protected against the risk of unpaid claims. And these are capable of causing problems of liquidity, depending on the level of outstanding debt can lead quickly to a company’s financial problems. The credit not only to demand compensation for a loss, but also the credit rating of the decline in business in the country and abroad.
In credit insurance, trade credit forms are secured by accounts receivable for goods and services, and capital of the credit insurance products vary. Political risks can be insured through credit guarantees for export.
For the wider field of credit insurance to consumers, it differs only to banks, for example, in hedging against MRP or installment loans from individuals.
It has in times of rising unemployment, involvement with a corresponding increase in judicial decisions in this segment. In this extended environment, deposit insurance is based, which is similar to a bank guarantee.
Credit insurance was launched for the purpose of underwriting specialist. The aim was to combine the product lines of business credit insurance, surety insurance and fidelity insurance, which sometimes previously offered by large insurance companies, to companies for providing protection against liquidity shortages competent .
Consumer credit insurance is a means for consumers to cover the settlement of loans, so that even if the debtor dies, disabled, or lose your job, the debt still to pay.