What exactly is credit insurance? This term in fact refers to two different products which relate to two distinct categories of services. Credit insurance taken out during a consumer loan has nothing to do with the solution offered to SMEs in the case of factoring. Our explanations.
A question of definition
The term credit insurance is particular in that it can formally designate two different products . Indeed, there is both a product for private borrowers and a service specific to SMEs.
The case of consumer credit
In the case of a private loan, namely a loan granted by a bank or financial institution to an individual, credit insurance then refers to monthly insurance. This will cover the reimbursement of the borrower’s monthly payments in the event of death, illness, unemployment, etc. There are two types of credit insurance in this case:
- Compulsory credit insurance : this is included in any credit contract. In the event of accidental death of the borrower, the reimbursement will then be covered by the cover.
- Optional credit insurance : this is a complementary product that generates a cost for the borrower. This coverage provides an additional level of protection by also guaranteeing, subject to conditions, the payment of monthly payments in the event of illness, disability and involuntary unemployment.
For more information on this product, Best bank offers a page dedicated to credit insurance.
We also speak of credit insurance in the case of factoring (or factoring). Factoring is a set of solutions proposed to SMEs and allowing to protect against the default of payment of the customers. In this sense, it is a pack generally comprising three complementary services:
- Factoring : solution which consists in paying an advance for any invoice issued.
- Assignment of receivables : which consists of outsourcing the debt recovery service.
- Credit insurance
In this context, credit insurance is then a product that guarantees an SME to be compensated if a customer were unable to honor an invoice. For more information, the PrestaFlex website offers a complete factoring file.