If you’re working in any country where there is a risk of political instability, and your assets or products could be at risk, insuring yourself with a political risk insurance policy is likely a good idea.
But what’s included in political risk insurance? Will you be covered in every situation? Can you add additional coverage to a specific contract or for a particular country?
These are all good questions. So, in this article, we’ll discuss everything you need to know about political risk insurance, based on a political risk insurance sample policy.
Understanding What’s Covered
Each insurance policy is designed specifically for the needs of a single company. However, a political risk insurance sample policy may include the following coverages:
- Breach or frustration of contract – If a contract is breached or frustrated by a foreign government, you will be compensated for the lost revenue and income. For example, if you delivered a shipment of drones to a government and they refused to pay, you would be covered.
- Political violence – This coverage protects your business from losses incurred by war, political unrest and instability, violence, civil war, and other such instances of political violence.
- Expropriation of private property – If your property or infrastructure is seized by a foreign government, your insurance policy will compensate you for the value of the lost assets.
- Business interruption – Loss of licensure, interruptions of business due to civil unrest, and other such interruptions of revenue are typically covered by a political risk insurance policy.
- Foreign currency and banking issues – Issues with moving foreign currency to your own bank, converting it, hyperinflation, or seizure of your currency by a central foreign bank all may be covered in your policy.
- License suspension – Should your import/export license be suspended, you may be compensated for the value of the shipments you lost or could not deliver, due to this suspension.
- Government defaulting on payments – If a foreign government fails to repay its debts to you, based on your contract, the insurance company will compensate you for a percentage of the lost sale.
There can be more specific coverage, based on your own needs, but these are the most common types of coverage included in a political risk insurance sample policy.
Limitations Of Coverage
In general, any covered incident occurring will result in you being paid for the loss by your insurance company. But what’s important to understand is that, in most cases, you will not receive compensation for the entire loss – but for a percentage, as set forth in your policy.
Premium Costs And Your Obligations
The premium of your political risk insurance coverage depends on a number of different factors.
- Value of contract or goods – The more valuable a contract is, the more it will cost to insure it
- Percentage of contract that will be paid out – You may be able to lower your premiums by agreeing upon a lower percentage that pays out upon your loss, such as 70%, rather than 85%.
- Location in which you’re doing business – A higher-risk country will require a more expensive policy, due to the increased risk of political instability.
- Creditworthiness of the client/government – Even in an unstable country, premiums and rates for a client or government with a history of timely payments may be lower, because there is a lower risk of default and non-payment.
See A Political Risk Insurance Sample Policy For Yourself!
Above, we’ve simply outlined the main components of a political risk insurance sample policy. If you’d like to dive deeper, the team at Niche Trade Credit would be happy to help!
We’ve been working as trade credit and political risk insurance brokers for more than 15 years. Contact us now, and we’d be happy to provide you with a political risk insurance sample quote, and help you understand how much you can expect to pay for coverage.
*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.
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