Credit insurance, and particularly trade credit insurance, covers losses stemming from two major categories of risk:

1. Commercial Risks

• Insolvency of the buyer: This is the core protection. If your customer files for bankruptcy and is unable to pay their debts, credit insurance covers a significant portion of the outstanding invoice.
• Protracted Default: If a buyer consistently fails to pay on time or defaults on payments for an extended period (as defined by your policy), the insurance will cover those losses.

2. Political Risks

• War, Revolution, etc.: If your ability to collect payment is hindered due to political unrest, war, or similar events, credit insurance may offer coverage.
• Government Action: This includes currency restrictions that prevent payment, import/export restrictions that disrupt trade, or government expropriation of goods.
• Natural Disasters: Some policies might cover losses if a natural disaster significantly affects your buyer’s ability to pay.

Important Notes:

• Coverage Varies: The specific types of losses and the extent of coverage will depend on your chosen credit insurance policy.
• Policy-Specific: It’s essential to carefully review the terms and conditions of your policy to understand precisely what is and isn’t covered.
• Exclusions: There will likely be exclusions in your policy, such as pre-existing financial issues with the buyer or situations where you haven’t followed sound credit management practices.