Credit Insurance: What It Is and How It Works
Credit insurance is a type of insurance that guarantees credit payments in the event of a risk that causes the debtor to be unable to pay off his obligations, such as death, permanent disability, job loss, or bankruptcy.
Credit insurance is usually offered by financial institutions that provide loans, such as banks, cooperatives, or finance companies.
Credit insurance can protect both debtors and creditors from financial losses due to default.
Credit insurance can be divided into several types, depending on the type of loan insured.
Some examples of credit insurance are:
- Home ownership credit insurance (AKPR), which guarantees housing loan payments if the debtor dies or has permanent disability.
- Motor vehicle credit insurance (AKKB), which guarantees payment of motor vehicle loans if the debtor dies, becomes permanently disabled, or loses his job.
- Multipurpose credit insurance (AKM), which guarantees consumer credit payments for various purposes, such as education, weddings, home renovations, or travel.
- Business credit insurance (IKU), which guarantees payment of business credit if the debtor suffers a business loss or bankruptcy.
The way credit insurance works is as follows:
- Debtors apply for loans to financial institutions and choose credit insurance according to the type of loan.
- Debtors pay credit insurance premiums regularly, usually together with loan installments.
- If the debtor experiences a risk that causes him to be unable to repay the loan, such as death, permanent disability, loss of job, or bankruptcy, the debtor or his heirs can submit a credit insurance claim to the insurance company.
- The insurance company will verify and assess credit insurance claims in accordance with the policy provisions.
- If the credit insurance claim is approved, the insurance company will pay the debtor's remaining loan to the financial institution.
Credit insurance has several benefits, including:
- Provide financial protection to debtors and their families in the event of a risk that interferes with the ability to repay loans.
- Provide financial protection to financial institutions from the risk of debtor default.
- Increasing debtors' trust and loyalty to financial institutions that provide loans and credit insurance.
- Encouraging the growth of the financial sector and the economy by increasing public access to productive and consumptive loans.
