The typical policy term for credit insurance is one year (12 months). Here’s why:
- Aligns with Business Cycles: An annual term allows businesses to reassess their credit risk profile and adjust their insurance coverage in line with changing economic conditions or shifts in their sales strategy.
- Risk Assessment: It gives the insurer a reasonable timeframe to monitor and evaluate the financial health of your customers and update their credit limits accordingly.
- Premium Calculation: Insurers base their premiums on annual projections of your sales volume, risk exposure, and other factors. A one-year term simplifies the calculation process.
- Flexibility: While the standard term is one year, some insurers might offer some flexibility:
- Short-term policies: For specific projects or transactions with a defined duration.
- Multi-year agreements: Potentially available for larger businesses seeking longer-term stability in premiums and coverage, but these are less common.
Renewal Process:
- Most policies renew automatically, but with the ability for both you and the insurer to make adjustments based on the previous year’s performance and updated risk assessments.
Important Note: Even though the policy term is typically a year, you can file claims on eligible losses that occur during that coverage period, even if the actual payment default happens after the policy expires, depending on the specific terms of your contract.