Yes, credit insurance policies absolutely have coverage limits. Here’s a breakdown of the various limits you might encounter:
Types of Coverage Limits:
- Overall Policy Limit:
- This is the maximum amount the insurer will pay out across all claims during an entire policy period (usually one year).
- Choosing this limit involves assessing your total amount of receivables at risk.
- Buyer Limits (also known as Credit Limits):
- Each insured customer has a designated limit of coverage.
- The insurer analyzes the buyer’s creditworthiness and establishes a limit they’re comfortable covering.
- You might have some flexibility to request higher limits for specific customers or adjust these limits over time.
- Country Limits:
- For international trade, policies may have limits for specific countries, reflecting the perceived economic and political risks.
- Industry Limits:
- Some insurers might set limits on the total exposure they are willing to take on within a particular industry sector.
- Claim Limits:
- There might be a maximum limit per individual claim (even within the overall policy or buyer limits).
Why Limits Exist:
- Risk Management: Insurers must carefully manage their own risk exposure by spreading coverage across multiple businesses and limiting potential losses.
- Premium Calculation: Coverage limits are a significant factor in determining the premium cost of your policy.
Impact on Your Business:
- Careful Planning: You need to strategically choose coverage limits that align with your business risk profile and the amount of protection you need.
- Restrictions: Limits might mean that you can’t insure all of your sales or extend the desired amount of credit to high-risk customers.
Important Notes:
- Policy-Specific: The exact types of limits and their amounts will vary depending on your chosen policy and the insurer.
- Negotiation: Some limits, particularly buyer limits, may be negotiable to a certain extent.