Are you thinking of taking out credit insurance or have you heard about this type of policy? If you have a company, this is a very interesting financial tool, as it can bring you numerous benefits.
Basically, credit insurance protects your company against the risk of non-payment by your customers. This insurance contract is essential in businesses that operate with deferred payments, such as credit sales.
In this article we explain in detail what credit insurance is and how it works.
What is credit insurance?
Let’s start with the most important: its definition.
Credit insurance is a contract between a company and an insurer, in which the insurer undertakes to indemnify the company in the event that one or more of its customers are unable to pay their debts, either because of insolvency or prolonged delay in payment.
For companies, one of the main advantages of this type of insurance is that it reduces the financial impact that can result from default, facilitating the continuity of their operations.
Difference between credit insurance and surety insurance
By the way, although we tend to associate the terms credit and surety, they do not mean the same thing. While credit insurance protects a company against the risk of non-payment by its customers, surety insurance is insurance that insures the fulfillment of specific obligations under a contract or agreement.
If you are looking for credit or surety insurance, PIB Group Iberia can help you find policies adapted to your needs, call us!
How does credit insurance work?
Now that you know what this policy is, let’s get to the other crux of the matter: how exactly does credit insurance work?
This insurance operates as follows:
- Preliminary evaluation. First, the insurance company analyzes the company’s customers in order to determine their creditworthiness and set the insured credit limits for each one.
- Claim and indemnification. If a non-payment occurs, the company notifies the insurer, who investigates the case and, if applicable, compensates the company up to the insured amount.
- Risk management. Many insurers also offer services to constantly monitor the solvency of insured clients, alerting the company when there is any type of risk.
What does credit insurance cover?
Among the most common doubts regarding credit insurance are those related to its coverage and guarantees.
In what kind of situations can this policy cover your company? Let’s take a look:
- In case of insolvency defaults, i.e. when a customer goes into bankruptcy or liquidation and is therefore unable to pay his debts to your company.
- In default for prolonged delinquency, if the debtor does not pay after a defined period, generally 180 days.
- For political risks (optional coverage). Sometimes, in international cases and if stipulated in the contract, the insurer covers the risk of non-payments arising from political conflicts, regulatory changes or natural disasters that affect the client’s ability to pay.
Credit insurance requirements
Are there any requirements for taking out credit insurance? The answer is yes. Although they depend on each insurer, in general, these are the requirements you must meet:
- Have a registered company and operate with customers on credit.
- Provide the insurance company with updated financial information about your company.
- Also provide you with a list of customers, with details of their transactions and amounts to be insured.
- Abide by the credit insurer’s policies on notification of risks or possible non-payments.
Usually companies want to insure 100% of credit sales, but some are willing to insure a lower percentage, as some companies do not want to protect everything.
How much does credit insurance cost?
If you are concerned about the amount to be paid for this policy, you should know that, normally, premiums range between 0.2% and 1% of the total insured value.
Even so, the price of credit insurance depends on several different factors, such as the size of the client portfolio, the risk profile of those clients, the industry or region in which your company is located and, of course, the stipulated coverage and possible deductibles.
How to take out credit insurance?
If you are interested in this financial tool for risk management in your company, these are some of the tips you should consider before taking out credit insurance:
- Evaluate your needs. First, it is essential that you determine the clients and amounts that your company should insure.
- Do your research. There are numerous options on the market when it comes to taking out credit insurance, so it is important that you research the conditions offered by each insurer. Remember that at Moné we act as an insurance comparator and we can help you. In situations like this, professional help can be decisive in finding the best solution.
- Study the contract. Also, before signing any contract, make sure you understand the terms, coverages, exclusions and obligations. If you don’t understand anything, we are at your disposal!
- Talk to your insurer. Of course, maintaining active communication with your insurer so that they can update you with the latest information and you can better manage your risks is essential.
Do you have more doubts about credit insurance? PIB Group Iberia has been working with this type of insurance for companies for many years and we are here to help you find one that fits your needs.
Minimize your financial risks and enjoy peace of mind, contact us as soon as possible!
