Benefits of Credit Insurance for Banks and Types
Sometimes there is an unexpected need that causes the need to make credit at the Bank. So every month you have to add expenses that are quite draining the pocket.
The thing that then becomes one of the considerations or concerns of a person is whether he can pay off the credit or not.
The bank is also finally worried that if many debtors are unable to pay off their credit burden, of course this will cause losses. There is even a possibility for the bank to go bankrupt.
But you don't need to worry anymore, this is because now credit insurance services are available.
The definition of credit insurance itself is a protection provided to the bank or financial financing institution.
This form of protection is protection against the risk of debtors who are unable to pay off the credit burden of their loans.
So that protection is given to creditors, not debtors or banks or financial financing institutions themselves.
Credit insurance benefits
Because credit insurance provides protection to creditors, namely the Bank, the following are some of the benefits of credit insurance obtained by the Bank.
1. Guaranteed credit criteria
To obtain credit insurance, banks or financial financing institutions must understand a number of credit criteria that may be used in the credit insurance process.
Some credit criteria include, if the credit given to customers or debtors is based on safe, healthy, and legal norms.
Then if the debtor is not in a bad economic condition or is in the process of bankruptcy. Furthermore, if the debtor has no dependents or debt burden.
The debtor must also be ensured to have a business license that does not conflict with the law. In addition, the credit process is carried out in accordance with the SE Bank Indonesia Credit Provision Manual.
So that it can be concluded, the bank or financial financing institution will ensure that the credit criteria are met. Of course this will minimize all risks that can occur.
2. Guaranteed risk
The risk if the debtor is unable to repay the credit when it is due because the business run by the debtor has gone bankrupt or is no longer running, is one of the risks that can be guaranteed by credit insurance.
As a result of a capital deficit or in other words the business being carried out is bankrupt, it can cause the debtor to no longer be able to pay his debts to the Bank.
Then there is also the risk that the debtor has been declared bankrupt by the competent district court or the debtor has been subject to liquidation and as long as the debtor is not a legal entity placed under pardon.
Then there is also the risk because the debtor simply abandons his responsibility to the Bank to pay off the debt by running away/disappearing/no longer known address.
These risks can be accounted for by the insurance party to the creditor or the Bank. So that the Bank will not be harmed by some of the risks carried out by the debtor as above.
Types of credit insurance
There are several types of credit insurance whose benefits also depend on the types of credit insurance. Here are three types of credit insurance.
1. Insurance for the risk of default
Default is a form of error committed by the debtor intentionally or due to negligence so as to make the debtor unable to pay debts to the Bank.
By using credit insurance, the risk of default can be accounted for by the insurance company.
2. Insurance for the risk of layoffs
Debtors who have not become permanent employees in a company or agency where they work can be at risk of being known as Termination of Employment (PHK). With credit insurance, the risk of this layoff can be minimized.
Because the possibility of being laid off is very possible, especially if the company's economic condition is unstable, such as during the Covid-19 Pandemic when there was an economic shock so that many people were laid off.
3. Life insurance
Life insurance here means credit insurance that will pay off loans that have bad credit due to the death of the debtor. Due to what generally happens, if the debtor dies, the loan will be borne by the heirs.
This loan can certainly be very burdensome for the bereaved family. Especially if the heirs do not know about the loan submitted by the debtor before he died. This life insurance is usually recommended for debtors who are over 50 years old or approaching retirement age.
How to Apply for Credit Insurance for Banks
Before getting various coverages and benefits from credit insurance, the Bank must apply for credit insurance. Banks or financial financing institutions who wish to apply for credit insurance must submit the following documents:
- Cooperation Agreement or Letter of Agreement between the Insurance Company as the insurer and the Commercial Bank/Financial Financing Institution as the insured.
- Credit Granting Manual issued by the Commercial Bank/Financial Financing Institution.
- Deed of debtor company, debtor company profile, debtor financial report for the last 3 years.
- Photocopy/copy of credit application from debtor to commercial bank/financing institution, memorandum of credit approval from commercial bank/financing institution to debtor.
It can be concluded that credit insurance is very beneficial for the Bank. With credit insurance, the Bank does not need to worry if there is a risk that the debtor cannot pay off his debt for various reasons.
So that the Bank will feel more secure from the risk of loss due to non-payment of debtors' debts. The benefits of using insurance are certainly very religious depending on the type of insurance.