Credit insurance is basically used to refer to business credit insurance and consumer credit insurance; instances are credit disability insurance, credit life insurance and credit unemployment insurance.
The insurance of payment of credit extended to consumer is done with the business credit insurance purchased by the business. On the other hand, consumer credit insurance is credit insurance which consumers buy for the insurance of payment of credit extended to them.
Consumer credit insurance is a means for consumers to get repayment of loans made, notwithstanding if the borrower is alive, becomes invalid or unemployed. Different kinds of consumer loans can be insured with purchased consumer credit insurance; they include loans from finance companies, auto loans, credit card debt as well as home mortgage borrowing. The consumer is the one who purchases the consumer credit insurance; however, the company that finances the purchase or makes the credit extension to the consumer is the one that obtains the benefits.
Trade credit insurance aids in the insurance of the payment risk that companies are exposed to. Those who are policy holders to this insurance type need a credit limit on every buyer of their goods for the insurance of the sales of each buyer. The premium rate charge is normally low and it shows the average credit risk of the portfolio of buyers insured.
Also known as business credit insurance, credit insurance is one of the insurance policies as well as risk management product that take care of the risk accruing from goods or services delivery. Usually, trade credit insurance covers a portfolio of purchasers; it pays a percentage of invoices or receivable that has not yet been paid due to a prolonged default or bankruptcy. The product is bought by business entities for the purpose of insuring their accounts receivables against loss resulting from the debtors’ insolvency. Trade credit insurance is not meant for individuals to purchase. Credit insurance premium fees are paid monthly and they are calculated as percentage of all receivables outstanding.
Credit Life Insurance
Credit insurance also includes life insurance. Consumers are the buyers of this type; generally, it is sold with big ticket purchases. A typical example of this is an automobile. At the death or disability of the consumer or borrower prior to the full repayment of the loan, the remaining balance will be paid off by this insurance.
Unemployment credit insurance is the subset of credit life insurance; as said earlier, if the borrower losses the job officially, the repayment of the loan is made until the borrower is re-employed. In the incident of loss of job, the policy holder does not repay the entire principal; the only exception is the case where the borrower is unemployed for the remaining period of the loan.
Generally, credit insurance is broker-driven. Principally, the brokers aid in structuring a market competition among various insurers for a preferred premium pricing and policy wordings for borrowers. Again, brokers assist borrowers to meet the terms of the policy contents so that the claiming process (if any) can be facilitated
Author Resource:
Roy CBC is author of this article on Debt Collection .
Find more information about Debt Recovery here.
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