Is Credit Insurance Really Worth?

What is credit insurance?

Credit insurance is also known as debtor insurance. This type of insurance protects your business from unnecessary losses when your major client is unable to pay their dues. Supposing your major client is not able to their dues to you or delays their payments, then what happens to your business?

You most likely will run into loses. To avoid that from happening credit insurance ensures that your business gets paid. This insurance policy was started in the United States of America. It is also called as payment protection insurance. The payment protection insurance helps in mitigating the risks of the lender.

Situations like getting disabled or losing your job can badly affect your family. During these situations, you need a back up in the form of credit insurance. However, you must make sure that you get the right insurance plan that can protect your business.

There are three types of credit insurance, which depends on kind of credit.

Decreasing term coverage

This kind of insurance is meant for installment payment systems that are close-ended. You can find this kind of coverage in cases of educational lending, automobile, consumer, mortgage, where the balance reduces when payments are made regularly.

Ordinary term coverage

This kind of coverage is meant for loans that are single payment. Here, the loans have to be paid in a single amount. The outstanding amount will not reduce in this case.

Varying amount insurance coverage

This kind of coverage is meant for amounts that keep changing every month like credit card loans and is open-ended. As a giver, you must ensure that the loan is covered by the insurer because from your borrowings, a large amount might not get uncovered due to certain conditions from the credit insurance company.

In cases of death, the amount that has been claimed is paid to the creditor. When the borrower becomes disabled due to accidents or other reasons, the lender gets their money. Of course it is subject for a specific elimination time-period. Due to unemployment also the amount can be claimed by the borrower.

Conditions like resignation, retirement, and illness don't usually get covered in this insurance plan.

Benefits of credit insurance

Some of the benefits of credit insurance are listed below.

Guard your assets

Through this kind of insurance policy, you are guarding your assets. There might be heavy losses for an unprotected asset, which you might need in times of trouble. So, to protect your assets, you might want to take this policy.

Strengthen your credit risk management controls

Using this kind of insurance policy helps you strengthen your credit risk management controls. When you need information about companies globally to extend your credit, then using this data can be useful. This also provides you the ability to find out about their previous accounts.

Support your sales goals

This insurance policy helps you get inside new markets that are unfamiliar to you more comfortably. Since you can enter new markets, without problems, you can make more income.

When you want to operate a successful company, you need credit insurance.