Credit Insurance

Credit insurance includes both credit life insurance and trade credit insurance.

Credit Life Insurance

This type of insurance is purchased by consumers. It is generally sold with big ticket purchases. An example would be a boat or an automobile. If the borrower dies or is disabled before the loan is paid off, this insurance pays the remaining balance of the loan. This policy is purchased by the borrower, but the benefit is paid directly to the finance company to satisfy the debt of the borrower.

A subset of this type of insurance is unemployment credit insurance. If the borrower (policy holder) becomes unemployed (in a qualifying manner) then loan payments are made until the borrower regains employment. The entire principal is not paid in the event of unemployment, unless the borrower (policy holder) remains unemployed for the remaining duration of the loan.

Trade Credit Insurance

Sometimes just shortened to Credit Insurance and sometimes known as Business Credit Insurance, this insurance covers payment risk. A business will purchase this insurance in order to insure their accounts receivable from loss due to bankruptcy or insolvency of debtors.

This type of insurance is only available to businesses. Premiums for trade credit insurance are charged monthly and are based on a percentage of all outstanding receivables.