The policy specimen, declarations, endorsements, and buyer credit limits are the main components of a trade credit insurance policy.
Policy Specimen
Policy Specimen is the Insuring Agreement between the Insured and the Insurer and details the requirements of each party. It will include the coverages, requirements of an insured receivable, any exclusions, the claim filing period, and the timeline for claim settlement.
Policy Declarations
The Declaration page includes the policy terms. The terms are often developed based on the application information submitted to the insurer. Key terms include:
- Sales Basis: If the premium is based on forecasted sales.
- Premium Rate
- Insured Retention: Either through deductible or coinsurance.
- Policy Limits
- Specific Terms: Related to reporting and claim filing requirements.
General vs. Specific Endorsements
- General Endorsements: A state requirement is an example of a general endorsement and would be included in all policies.
- Specific Endorsements: Based on the Insured’s credit and sales procedures. If the insured sells on consignment, the consignment endorsement should be included in the policy endorsements.
Buyer Credit Limit Endorsements
Buyer credit limit endorsements are the established maximum amount of credit that can be extended to individual buyers or groups of buyers, providing a clear framework for credit management.
Detailed Components of Policy Specimen
- Coverage: Specifies the types of risks covered, such as insolvency of the buyer, protracted default, and political risks, ensuring that businesses are protected against various scenarios that might lead to non-payment.
- Claim Process: Outlines the procedure for filing a claim, including required documentation and timelines, providing clarity on how to proceed in the event of a loss.
- Exclusions: Lists specific situations or conditions that are not covered by the policy, setting clear boundaries for what is and isn’t covered.
- Obligations of the Insured: Specifies the responsibilities of the policyholder, such as credit management practices and reporting requirements, ensuring that both parties understand their roles.
- Indemnity Period: Defines the time frame within which a claim must be filed following a loss event, ensuring timely processing of claims.
- Dispute Resolution: Details the process for resolving any disputes that may arise between the insurer and the policyholder, providing a clear path to address disagreements.
Policy Declarations
- Policy Limits: Define the maximum amount that can be claimed under the policy, helping businesses understand the extent of their financial protection.
- Deductible/Retention: The amount the policyholder must bear before the insurer pays out, ensuring that the insured retains some level of risk.
- Premium: The cost of the insurance, usually calculated as a percentage of the insured receivables, which is a crucial factor in determining the overall cost-benefit analysis of the policy.
Understanding these components helps businesses effectively utilize trade credit insurance policies to protect against potential financial losses due to non-payment by buyers.
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.
