To begin with, let's define first if what is this term Credit Insurance means. So what is it? Credit Insurance is simply a term used to describe both Credit Life Insurance and Trade Credit Insurance.To elaborate:
Credit Life Insurance is a consumer purchase, often sold with a big ticket purchase such as a car. So the insurance will pay off the loan balance in the event of the death or the disability of the borrower. Even though purchased by the consumer or borrower still the benefit payment goes to the company financing the purchase to satisfy a debt.
Trade Credit Insurance- also known as this term "Business Credit Insurance" is an insurance policy and risk management product that covers the payment risk resulting from the delivery of goods or services. This insurance usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that remains unpaid as a result of protracted default, insolvency or bankruptcy. In addition, it is purchased by business entities to insure their accounts receivable from loss due to the insolvency of the debtors. Another thing is, trade credit insurance is not available to private individuals.
Note:
The charges of this are usually on monthly basis, and are calculated as a percentage of sales of that month.
This type of insurance insures the payment risk of companies, not of private individuals. Policy holders require a credit limit on each of their buyers for the sales to that buyer to be insured. The premium rate is usually low and reflects the average credit risk of the insured portfolio of buyers.
