Understanding Credit and Political Risk Insurance

Businesses face a number of threats as they begin to grow, and protecting your company is very important. Insurance companies offer a number of different policies to local businesses for protecting them against external and internal threats. For instance, the political climate of the country can have a major impact on your business. If the new government introduces some new measures that affects your company’s operations drastically, you might want to consider buying an insurance policy that offers protection against such a thing.

There are a number of insurance companies that currently offer credit and political risk insurance to businesses of all sizes. However, before you purchase such a policy, it’s highly important that you evaluate different factors and compare your choices. There’s no need to rush into making such a decision, mainly because you have so many options to choose from. Here are a few important tips that you should keep in mind when it comes to buying an insurance policy that protects you from political and credit risk.

What Is Credit Risk?

Trade credit risk, also known as business credit risk, is just one of the many risks that companies have to face. Most businesses do their dealings on credit, and accounts are generally maintained on an accruals basis. This means that when a sale is made, the amount owed by the customer is recorded, even if the person hasn’t paid yet. This is listed under the accounts receivable maintained by the company, and is also highlighted in the company’s financial statements. If a company has an ever-growing number of accounts receivables, it clearly shows that the company does not have a solid recovery system in place. There’s a big risk that some debtors may default on their payments, which could cause a major loss to your business. To protect yourself from this, buying a credit risk insurance policy is a suitable idea.

Understanding Political Risk

The continuously changing political climate also affects a company’s ability to maintain profitability. It’s one of the many reasons why multinational corporations usually prefer setting up their headquarters in countries that have a relatively stable political climate. If the government passes a bill that affects your company’s operations or business, it could have a major impact on your ability to maintain profitability. If there’s a political risk in the country, you should consider buying a political risk insurance policy.

Evaluating the Premium

When selling an insurance policy, the insurance company will first ask you to fill out a detailed form. This form includes all relevant information needed by the insurance providers to evaluate your premium and then give you a quote for the yearly premium that you will have to pay. Ideally, you should get a premium quote from multiple providers in the city. The premium is calculated based on a number of different factors, such as the risk associated with the company and the general political climate in the country. These are some important things that you should know about buying a political risk insurance policy.