Bankruptcy Insurance: Who Needs it Anyway?

When a customer or key business partner goes bankrupt, the financial impact can be devastating. Many companies don’t realize they can protect themselves with bankruptcy insurance, a type of coverage that protects against credit losses when a client defaults due to insolvency. 

What Is Bankruptcy Insurance? 

Bankruptcy insurance, also known as trade credit insurance, helps businesses recover unpaid debts when a customer declares bankruptcy. This coverage ensures that businesses don’t suffer significant financial losses due to insolvency. 

Who Needs Bankruptcy Insurance? 

While any business extending credit can benefit, bankruptcy insurance is particularly valuable for: 

• Manufacturers and suppliers that sell on open terms. 
• Wholesalers and distributors with high receivables exposure. 
• Service providers relying on client payments for cash flow. 
• Lenders and financial institutions managing credit risks. 

Many companies only look into bankruptcy insurance after suffering a loss. However, proactively securing coverage can prevent severe financial setbacks. 

How Does It Work? 

Bankruptcy insurance policies typically follow these steps: 

1. Business extends credit to a customer. 
2. Customer defaults due to bankruptcy or insolvency. 
3. Policyholder files a claim with their insurer. 
4. Insurance company pays per policy terms, covering a percentage of the unpaid debt. 

The Federal Trade Commission (FTC) offers insights on protecting businesses from financial risks. 

Real-World Impact: Why It Matters 

Consider a business with a 10% profit margin that suffers a $200,000 bad debt due to a customer’s bankruptcy. That company would need to generate $2 million in additional sales just to recover the loss. With bankruptcy insurance, the financial impact is significantly reduced. 

A Look at Bankruptcy Insurance in Action 

For a quick explanation of how credit insurance protects businesses, check out this video.

Key Takeaways: 

• Bankruptcy insurance protects against non-payment due to insolvency. 
• Businesses in manufacturing, distribution, and services benefit the most. 
• Coverage ensures financial stability and reduces bad debt impact. 
• Policies can be customized based on risk exposure. 

Final Thoughts 

Bankruptcies are unpredictable, but their financial impact doesn’t have to be. Bankruptcy insurance provides a safeguard for businesses relying on credit sales. If you’re interested in exploring coverage options, now is the time to act. 

Need guidance? Let’s discuss how you can protect your receivables today. 

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.