In today’s time, insurance is an undeniable essential for every individual. It is similar to making an investment for one’s future and safeguarding from further losses. Currently, there are various types of insurance available out there. Each of these varies in purpose, term, and service. One of these types is Credit insurance. You must have come across the term but let’s get into the details and understand the same thoroughly.
What Is Credit Insurance?
It is a type of insurance policy purchased by a borrower to pay off one or more existing debts in cases of events such as deaths, disability, and rare instances of unemployment. Credit insurance fulfills the purpose of protecting the policyholder from the repayment inability of the borrower due to various reasons. In general cases, it is mainly marketed as a credit card feature. Additionally, the monthly cost charges a low percentage of the credit card balance.
How Works Credit Insurance?
The credit insurance facility serves as a lifesaver in certain unforeseen events. However, some of these policies are overpriced for their benefits. Mainly, there are three kinds of credit insurance - life, disability, and unemployment. Furthermore, all of these are available to credit cardholders. Moreover, it is an optional feature and not mandatory for purchase. This facility also acts as a safety net for credit card owners in adverse economic situations.You may like to read: How to Claim Car Insurance? Find Best Car Insurance Agencies in India 2022
Types of Credit Insurance
Now, let us look at all three types of credit insurance in detail.
Firstly, Credit life insurance pays off outstanding loans and debts in death cases.
Secondly, credit disability insurance pays off direct monthly benefits to the lender, which equals the loan’s monthly minimum payment in case of disabilities. To clarify, one must be disabled before the benefits are paid for a specific period. However, the compensation is retroactive to the first day in certain situations. Commonly, the waiting periods for credit facilities range between 14 days and 30 days.
Finally, credit unemployment insurance pays benefits in cases of involuntary unemployment. This insurance pays a direct monthly benefit to the lender, which equals a loan’s minimum monthly payment.
Furthermore, unemployment for a specific duration is mandatory before the benefit is paid.
Trade Credit Insurance
Similar to credit insurance facilities, trade credit insurance is a protection facility for businesses. This type of insurance protects the accounts receivables from unpaid invoices. To clarify, these may be caused by defaults, political risks, customer bankruptcy, or other reasons the insurer agrees. In other words, trade credit insurance is also known as export credit insurance, debtor insurance, and accounts receivable insurance.
Now, coming to the benefits, let us discuss several features of trade credit insurance. Protection of accounts receivable is only a part of this facility. Additionally, it also helps to
- Grow the customer base by attracting potential buyers to credit terms
- Provide confidence for expansion by enhancing trade
- Promote stronger supplier relationships by enabling adequate cashflow
- Ensuring enhanced credit terms and improved communication for safeguarding customer relationships
Having discussed the meaning, types, and benefits of Credit insurance, let us look at the provider of the same. ECGC - The Export Credit Guarantee Corporation Of India is a Government-owned export credit provider. It comes under the Indian government’s Ministry of Commerce and Industry ownership. This enterprise provides export credit insurance support for Indian exporters.
Coming to the functions and features of ECGC, this enterprise has introduced various export credit insurance schemes to meet commercial banks' requirements. To clarify, this enables banks to extend timely and adequate export credit facilities.
Related Article: Best Family Health Insurance Plans, Coverage, Best Insurance Agencies in India
Subsequently, the ECGC provides the following facilities.
- It offers protection of insurance to exporters against payment risks
- It guides export-related activities
- ECGC makes the process of obtaining export finance from banks much easier
- It assists exporters with bad debt recovery
- It provides information regarding the credit capabilities of overseas buyers.
Now, let us look at the coverage provided by ECGC. Firstly, starting with the credit risks covered by ECGC, these mainly fall into two categories:
ECGC’s standard policies cover commercial risks and political risks. To clarify, commercial risks include buyer insolvency and protracted payment default. Furthermore, this also consists of the buyer’s failure to accept goods in some cases.
Secondly, let us discuss the political risks covered by ECGC. This further includes six types of specific covers.
- Restrictions are imposed in the buyer’s country for remittance sale proceeds. These may or may not block or delay the exporter payment.
- Civil disturbances such as war, revolution, or other situations in the buyer’s country.
- Any unexpected import restrictions are implied in the buyer’s country. To clarify, this may include the cancellation of a valid import license.
- The unexpected cancellation of valid export licenses and the imposition of new licensing restrictions.
- An additional payment of transportation and insurance charges arising due to interruption.
- Other losses occurring in the buyer’s country are excluded from general insurance.
To sum it up, the default falls under political risks when a foreign buyer or Government department refuses to make the payment.
Credit insurance is undoubtedly a beneficial facility. However, it is also essential to consider the following factors before opting for Credit Insurance.
- Existing insurance or other assets to cover the debt obligations in events such as death, disability, or unemployment
- The cost of credit insurance and comparing it with other options such as life insurance policy and disability insurance.
- If the premium will be financed as a part of the loan under single premium coverage
- Full term and balanced coverage of the credit insurance availed
- Waiting period for the monthly benefit
- The risks not covered by ECGC for the credit insurance policy
- Cancellation of the credit insurance by the lender or the insurance company
- Change of policy terms and the procedure for the same
Avail Credit Insurance By ECGC
If your personal or professional situation calls for the need for credit insurance, here is a list of ECGC offices for credit insurance in India:Find ECGC Insurance Offices in Your City: ECGC Office Locator
