Purchasing an export insurance coverage policy, also sometimes called a trade credit insurance policy, is a great way to protect your accounts receivable from payment risks, and short-term losses from companies who fail to pay their invoices on time.
But there is often some confusion about what, exactly, export credit insurance will cover. Is it import/export insurance? Can you use it domestically, or does trade credit insurance only cover a transaction with a foreign buyer in international trade?
So, in this article, we’ll help you understand this type of insurance. Exports, importers, and even domestic companies can benefit from it, so let’s get started now.
What Does Export Insurance Cover?
Trade credit insurance is designed to do only one thing – to protect your business and your cash flow from bad debt, caused by trade partners failing to pay your invoices on time. When a customer fails to pay for your products on time, faces protracted default or insolvency, or otherwise does not pay, your policy will compensate you, based on the value of the invoice.
And, despite the fact that it’s usually called “export insurance,” these types of policies can be used to protect invoices sent abroad and domestically. This is especially important if you work with just a few major customers – and the failure by any customer to pay their invoices on time could put your business in financial trouble.
It’s important to note that, while export insurance does cover default and bankruptcy, it may not cover disputed transactions, such as a customer claiming that your goods were not delivered, or were damaged, and refusing to accept them. To get compensation in this case, you may need to obtain a judgment against the defaulting customer, in order to get your insurance company to pay.
Export Insurance Coverage Is Not Cargo Insurance Or Marine Insurance
It’s important to understand that this type of insurance will not insure you against the loss and damage of your products while they are being shipped. This coverage will be provided by a marine insurance company for export trade.
Anyone selling their product overseas and shipping it via an oceangoing vessel should have marine insurance and cargo insurance, to cover and safeguard their short term profits if the vessel is wrecked, fails to arrive on time, or damages their cargo. Export insurance coverage will not be useful, in these cases.
Export Insurance Coverage Is Not Political Risk Insurance
While many companies who sell export insurance coverage also offer political risk insurance, they are not the same thing. Political risk insurance, as the name implies, is designed to help your company maintain profitability if political events unfold which prevent you from being paid.
Your need for political risk insurance primarily depends on the countries in which you’re doing business. If you work as an Australian importer/exporter, and primarily export to countries like the United States, Canada, the UK, or other developed countries, the risk of political violence and business interruption is quite low.
However, in other areas, such as African nations and some Asian countries like India or China, there is more of a risk that your business could be interrupted by regime change, armed revolution, currency and banking issues, and other such political threats.
That’s what political risk insurance is for. Based on your coverage, you can be compensated if a political event unfolds which interrupts your business, or results in a loss or forfeiture of foreign business assets or shipments.
Still Not Sure If You Need Export Insurance Coverage? Ask Us For More Details!
Niche Trade Credit is an experienced insurance broker based in Sydney, and we have more than 15 years of history, helping our clients understand export insurance and related policies, like political risk insurance.
If you’re still confused, or have other questions about export insurance coverage, please contact us right away, and we’d be happy to clear things up, and provide you with all of the information that you need to choose the right policy for your business.
*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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