Generally, all businesses and companies carry out their operations on credit. Given that the raw materials they buy and the finished goods they sell are in large quantities relying on credit comes as a given. Buyers generally do not pay cash upfront for the purchase of goods. Instead, they take the credit route and carry out part payment of debt over a specified time period. But, in such cases, buyer solvency is always evident as a significant risk. What happens if the buyer becomes incapable of debt repayment?
For instance, off buyer bankruptcy, businesses face considerable losses and fail to generate revenue from sales. The same can eventually lead to the weakened financial standing of the business. And that is precisely why a thing such as credit policies comes into existence. Let’s understand what these mean and how they help out businesses all over the country.
What is Credit Insurance?
A credit insurance policy is issued to cover the credit risk of businesses. In cases where debtors of businesses become incapable of repayment due to death, insolvency or disability, a credit insurance policy comes into the picture, pays the outstanding amount and helps businesses. Therefore, credit insurance policies are the policies that provide protection against bad debts for businesses.
Types of Credit Insurance Policies
Individuals availing of a loan and businesses can both take up credit insurance policies. These are further divided into the following types:
Credit Life Insurance
This kind of policy covers the risk of the debtor’s death. If the debtor passes away before the repayment, a credit life insurance policy covers the sum.
Credit Disability Insurance
As the name suggests, these policies cover the repayment in cases where a debtor becomes disabled.
Credit Involuntary Employment Insurance
In cases when a debtor loses his source of income due to unemployment, this kind of policy covers the contingencies.
Credit Property Insurance
In this type of policy, protection is provided for the property that is mortgaged against the debt.
Trade Credit Insurance
One of the most common credit insurance policies is designed specifically for businesses to protect them from bad debts.
Credit Insurance Coverage
Generally, credit insurance policies cover two main types of risks. These include political and commercial risks.
Commercial Risks
These include bankruptcy, insolvency and non-payment of dues from the buyer’s end.
Political Risks
These include risks faced due to political circumstances such as:
- Cancellation of the import license
- War, revolution, riots, rebellion and more such causes
- Any government policy or decision that prevents the repayment
- A general repayment holiday (moratorium) issued by the Government of the debtor’s country
- Types of political events which prevent the repayment of dues
- Non-payment by the buyer government
- Non-payment due to natural calamities in the buyer’s place of residence
Credit Insurance Exclusions
Repayment of debts during several instances is not covered under credit insurance. These include:
- Trade disputes
- Sale to a buyer using the goods for non-professional purposes
- Receipt of payment in advance
- Nuclear perils
- Loss because of foreign exchange rates fluctuation
- Refusal of goods by the buyer
- Sales are covered under an irrevocable Letter of Credit
- Interest accrued after the original due date of payment
- Reverse factoring policies and pre-shipment risks
Documents Required For Credit Insurance Claims
- FIR report
- Duly filled and signed claim form
- ID proofs
- Policyholder’s bank details
- Reports of inspection and accounts books
- Other documents required by the insurance companies
Credit Insurance Claim Process
The process and internal systems of different agencies differ internally. However, specific general guidelines are to be followed uniformly:
- Immediate information to the insurance company about loss faced or covered under the policy.
- Information to the policy issuing office about the loss faced.
- Any police report, when needed to be submitted to the insurance company.
- Appointment of arbitrator by the insurance company when required for calculating loss value.
- Submission of the final report to an internal panel
- Submission of required documents by the policyholder
- Transfer of amount for settlement
Best Agencies In India Offering Credit Insurance
TATA AIG Credit Insurance
As a joint venture of the American Internation Group and the Tata Group, TATA AIG commenced its operations in 2001. Since then, the company has grown enormously as one of the country's top preferred private general insurance companies.
United India Credit Insurance
Incorporated in 1983, this company carries a legacy of trust for thousands of customers. It has been at the forefront of designing and implementing large-scale customer covers. In addition, they also excel in extending insurance facilities to rural India.
HDFC Ergo Credit Insurance
At this company, the factor of trust redefines relations. So far, HDFC Ergo has strived continually to make insurance easier, affordable and convenient for over 1.5 crore customers. They specialise in fulfilling claims with utmost commitment.
ICICI Lombard Credit Insurance
As one of India's leading private sector general insurance companies, ICICI Lombard aims to be a value-creating solutions risk company, admired for its global footprint. In addition, the company has received several awards for its customer-centric approach.
IFFCO Tokio Credit Insurance
The company was incorporated in 2000 as a joint venture between the Tokio Maine Group and the Indian Farmers Fertiliser Co-operative Limited. The company offers a bouquet of services covering all lines of business. Furthermore, its presence is also established in rural areas.
Bharti AXA Credit Insurance
This company brings the solid financial expertise of the Paris headquartered AXA Group and Bharti Enterprises. The company has accomplished 99.09% of paid claims and has 254 branch offices.
Bajaj Allianz Credit Insurance
A joint venture between Bajaj Finserv Limited and Allianz SE, this company is one of the largest private insurers in the industry today. With a network of over 1100 offices, the company excels in continuous business expansion, reaching many customers.
