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Core Components of a Trade Credit Insurance Policy
A trade credit insurance policy consists of several key components, including the policy specimen, declarations, endorsements, and buyer credit limits. Understanding these elements helps businesses manage financial risk and protect receivables effectively.
Policy Specimen
The policy specimen serves as the insuring agreement between the insured and the insurer. It outlines the obligations of both parties, including:
- Covered risks
- Requirements for an insured receivable
- Exclusions
- Claim filing periods
- Claim settlement timelines
Policy Declarations
The declaration page summarizes the policy’s essential terms, typically based on the information provided in the application. Key terms include:
- Sales Basis: Whether the premium is based on forecasted sales
- Premium Rate: The percentage applied to covered receivables
- Insured Retention: The amount the insured must cover, either through a deductible or coinsurance
- Policy Limits: The maximum claimable amount under the policy
- Reporting & Claim Filing Requirements: Specific conditions for submitting claims
General vs. Specific Endorsements
- Endorsements modify or expand policy coverage. They fall into two categories:
- General Endorsements: Apply to all policies, such as state-mandated provisions.
- Specific Endorsements: Tailored to the insured’s credit and sales practices. For instance, a consignment endorsement ensures coverage when selling goods on consignment.
🔗 For details on how endorsements see LDI.gov.
Buyer Credit Limit Endorsements
Buyer credit limits define the maximum credit exposure for individual buyers or groups. These endorsements help businesses control risk while extending credit.
🔗 Find out how businesses assess buyer risk at Export-Import Bank of the United States.
Detailed Components of a Policy Specimen
Each policy specimen includes several crucial sections:
- Coverage: Specifies covered risks, including buyer insolvency, protracted default, and political risk.
- Claim Process: Outlines filing procedures, required documentation, and deadlines.
- Exclusions: Lists situations that the policy does not cover.
- Insured’s Obligations: Defines credit management responsibilities and reporting requirements.
- Indemnity Period: Establishes the timeframe for submitting claims after a loss.
- Dispute Resolution: Provides steps for resolving disagreements between the insured and insurer.
Why These Components Matter
A well-structured trade credit insurance policy ensures businesses can manage credit risk efficiently. By understanding each component, policyholders can maximize coverage benefits while complying with policy terms.
Disclaimer:
This blog post is meant to be informative and provide helpful tips and insights into credit insurance policies. It is not meant to supersede any policy requirements. Please consult your credit insurance policy for all requirements including claim filing deadlines and required documentation.
Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.