Understanding the Credit Insurance and its Benefits

Credit insurance, also known as payment protection insurance, credit protection insurance or loan repayment insurance, enables individuals to insure their repayment of debt if the borrower is unable to pay due to circumstances like borrower’s illness or sudden death or his inability to repay because he lost his job. You can buy credit insurance to insure all types of loans, such as home mortgage loan, car loans and loans from finance companies. Moreover, credit insurance policy also provides protection to your account receivables against the bad debts and allows you to give more credit to customers and hence, increase your sales.

Credit insurance ensures that your business will be paid for the goods and services that were delivered to your customers. Exact damage coverage depends on the terms and conditions mentioned in the credit insurance policy. Always seek guidance of Your Personal Financial Mentor when you are choosing the credit insurance plan in order to decide which package will be favorable according to your requirements. Every credit insurance policy is customized according to the needs of an individual or his business. Many companies cover the majority of their business in a credit insurance policy, including domestic and export accounts. If your company has operations in different countries, you can choose multi-country policies as well.

There are several benefits of credit insurance and some of them are explained below:

Loss protection

Account receivables in any business are one of the riskiest assets. Credit insurance provides protection against the risk of potential bad debt losses and hence, provides safety for your business.

Increase the borrowing limit

It also provides access to the working capital that can help you avoid cash flow problems and grow your financial prospects. Credit insurance policy increases the working capital availability from the receivables you provide as a security to your lender. Therefore, many ineligible receivables, such as foreign receivable and receivables with few accounts can now be added in your borrowing base to increase the borrowing capacity.

Safely expand the sale

Credit insurance allows you to expand your sales without any worry. If you want to expand the credit lines with your current customers, or you want to expand your business operations in a new market, credit insurance provides you a safe passage to grow your business to new heights.

Enable low bad debt reserves

Credit insurance allows you to reduce your bad debt reserves and manage the write-offs with confidence. Therefore, you can improve your profits, financial ratios and shareholder equity by taking the excess reserves back into the income. It strengthens your position in the market and increases the value of your share.

Ensure strong controls on credit risk management

Credit insurance companies track millions of companies around the world and hence, provide you the necessary information in order to make sure that you are selling to customers with strong credit standing in the market. It allows you to make a better decision when you are planning to extend credit.

Categories: Insurance

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September 3, 2013 Understanding the Credit Insurance and its Benefits