Credit insurance is also called as trade credit insurance. Credit insurance provides benefits for an individual and for the business. Credit insurance provides the protection for the policy holder against outstanding debts. Credit insurance recovers the business bill receivables, in case if they are not receivable from the customer or trader, as the trader or customer die due to health problems or from an unexpected event.
Credit insurance is mainly of two types
- Consumer credit insurance
- Trade credit insurance
1. Consumer credit insurance
Consumer credit insurance is purchased by the consumers to secure the repayment of their loan and loan properties. This insurance allows the borrowers to insure repayment of loan even if the borrower dies, becomes disable and loses his job. It mostly helps the banks and for credit card company.
For example: If a person buys a home by taking loan from the bank and suddenly the person is disabled to do work permanently due to the accident. Then the bank uses the home as collateral for the repayment loan. In such cases the person do not loose his home, if he/she has the credit insurance. Then his credit insurance company pays the loan amount.
2. Trade credit insurance
Trade credit insurance recovers the outstanding bills of a business. That means, if a business is not receiving it’s bill amount from the trader, due to the death of the trader. Trade credit insurance insures the business against such losses. It acts as a risk management tool for the business. Trade credit insurance provides protection for the business profits.