Liga Asuransi – Dear Readers, are you and your business doing well? Hopefully, in good condition, your business will continue to thrive. Before applying for a loan or credit, we need to be careful and think again because there is a risk of default. This risk is related to the financial capability to pay off the principal loan and the interest that arises.
For example, you have applied for a Home Ownership Loan (KPR) with a loan tenure of twenty years. However, in the middle of the tenor, you experience unexpected events such as being terminated or dying, so you cannot complete credit repayments. This can result in the family having to repay the loan you made.
Therefore, before applying for credit, you should calculate a simulated installment fee and the interest that must be paid each month—for example, comparing these costs with your income, assuming regular payment, or increasing yearly. Apart from that, you also need to rethink the use of credit insurance. This is because this financial product can be used to mitigate these risks.
Credit insurance is one of the solutions to anticipate the risk of default. This credit insurance provides protection and guarantees the insured as the credit recipient or debtor if he dies due to an accident, illness, disability due to an accident, layoffs, or experiences other events stipulated in the insurance policy, so he cannot continue his obligations to pay off loans to banks or lenders (the creditor). So against these risks, the insurance company, as the guarantor, is obliged to repay the loan or liability of the insured. Like insurance in general, credit insurance serves to protect something of value from emerging financial risks.
On this occasion, an experienced insurance broker will explain credit insurance. If you are interested in this article, please share it with your colleagues so they can understand this credit insurance just like you.
What is the definition of Credit Insurance?
Insurance provides protection and guarantees the insured as credit recipient or debtor if he dies due to an accident, dies due to illness (natural), or permanent disability due to an accident so that he cannot continue his obligations to the bank or creditor (the creditor). So against these risks, the insurance company, as the guarantor, is obliged to repay the loan or liability of the insured. Typically, this type of insurance is used to apply for mortgage loans, motorized vehicles (KKB), and credit cards.
The primary purpose of credit insurance is to protect the insured (in this case, a financial or banking institution) from the risk of default experienced by the debtor (the person making the loan), either due to death, loss of job, and so on.
What benefits of Credit Insurance?
Credit insurance can benefit debtors (loan recipients) and creditors (lenders). For debtors, the benefits obtained from credit insurance include paying off the remaining credit without arrears, paying off the interest on remaining credit payments and arrears, and facilitating loan applications. The existence of a guarantee that the insurance company will bear the repayment of credit reduces the risk of default, so that loan applications by debtors will be easier to process. As for creditors, credit insurance guarantees the repayment of loans issued by creditors. So that the risk of experiencing losses due to default can be mitigated.
Who needs Credit Insurance?
The insured is a commercial bank or financial financing institution that submits a credit insurance request. Not debtors who borrow funds from commercial banks or monetary financing institutions. Thus credit insurance is a bi-party agreement with only two parties involved, namely the insurance company as the guarantor and the commercial bank or financial institution as the insured.
Types of Credit Insurance in Indonesia
Credit insurance in Indonesia is divided into two types: consumer credit insurance and productive credit insurance. Each type of credit insurance has its function. Here’s an explanation.
- Consumer credit insurance is helpful as a cover for the risk of consumer credit default. Consumer credit insurance can be used to cover the risk of default on consumer loans, for example, the risk of default on housing loans (KPR) and motor vehicle loans (KKB)
- Productive credit insurance is helpful for productive credit default risk coverage. Adequate credit insurance is used to cover the risk of default on acceptable credit, for example, the risk of default on People’s Business Credit (KUR).
Consumer credit insurance is generally provided to individual customers through credit life insurance or layoff credit insurance. Credit life insurance will provide coverage if the individual debtor who gets the loan dies, so he cannot pay off his credit. Meanwhile, layoff credit insurance is provided if the debtor experiences Termination of Employment (PHK).
Both products from consumer credit insurance target the individual debtor segment. Several variants of this product include vehicle credit insurance, fintech credit insurance (for online loans), and multipurpose credit insurance.
This product will guarantee the risk of default on credit provided to corporate debtors from financial institutions. Usually, the default is related to the failure of the debtor’s business.
What are Acceptable Risk Criteria?
Credit that can be guaranteed by credit insurance is credit that is given:
- Based on healthy, reasonable, and generally accepted credit norms
- Following the Credit Granting Manual
- Debtors with business licenses determined by the authorities do not conflict with the law.
- Debtors who are not currently in bankruptcy proceedings or have been declared bankrupt or dissolved by law
- Debtors who have no credit arrears are classified as having doubtful credit quality
What risks are covered by credit insurance?
Risks that can be guaranteed in credit insurance are risks that arise due to the following:
- The debtor does not pay off the credit when the credit in question is due because the debtor’s business no longer exists or is no longer running.
- The debtor is declared insolvent and, to do so, must fulfill one of the following: the debtor is declared bankrupt by the competent district court. The debtor is subject to liquidation based on the decision of the competent Court. For this purpose, a liquidator has been appointed, and the debtor as long as it is not a legal entity is placed under guardianship.
- The debtor has run away/disappeared/his address is no longer known
- Credit withdrawal occurs before the credit period ends, namely specifically for loans with a maturity of more than 2 (two) years, provided that the credit withdrawal meets one of the following conditions: intended to prevent or reduce the occurrence of more significant losses if the credit continued, due to a discrepancy or deviation by the debtor of the provisions of the credit agreement.
- Other risks agreed between the insured and the insurer as outlined in the Cooperation Agreement or Mutual Agreement Letter.
How to Claim Credit Insurance
Every insurance company has different claim conditions. Even so, in general, customers can follow the following four simple steps:
- Submission of claims: the insured submits a claim as soon as possible after the loss occurs
- Claim investigation: the insurer will survey to ascertain whether the risks are following those covered in the policy
- Check proof of loss: the insured includes proof of failure in the form of supporting documents
- Payment: If agreed, the insurer will pay compensation for the risk of loss of the insured
- Usually, claims that have been approved will be liquidated within 14 working days, however, back to the policies of each insurance company.
Policy Exclusion
Risks that are not guaranteed by credit insurance are risks that arise due to the following:
- Nuclear reactions, radioactive touch, radiation, and reactions of atomic nuclei directly or indirectly affect and result in the failure of a Bank Debtor’s business regardless of how and where it occurs
- Losses suffered by the Debtor caused by risks that must be covered in Loss Insurance with total value (fully insured) or at least equal to the loan’s principal.
- The occurrence of one of the political risks that directly or indirectly affects and results in the failure of the Debtor’s business to pay off his Credit
- Legal actions were taken by the Government against the Debtor and/or the Debtor’s business that directly or indirectly affect and result in the Bank’s Debtor being unable/able to pay off his credit.
- Natural disasters (Acts of God)
- As a result of errors/negligence committed by Banks/Financial Financing Institutions
Claim rights from the insured arise:
- After 3 (three) months from the maturity date of the Credit
- The debtor has been reported to be in arrears during the Delinquent Debtor Report period, at least 3 (three) months before the emergence of claim rights
- Specifically for submitting claims before they are due, shares begin to arise when the credit is categorized as “bad”.
Credit insurance will make you feel more secure in applying for a loan, so you can be more relaxed when planning to own your dream home or vehicle through credit.
Our description above can be understood and considered for applying for a loan.
Getting a credit insurance guarantee takes work. Financial analysis is required as a complete market analysis. To get a Credit Insurance program, you need the services of an insurance broker company with the knowledge, experience, and strong relationships with insurance companies specializing in financial risks.
Contact your reliable insurance broker right now!
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