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Glossary of Terms - TRADE INDEMNITY

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					                       GLOSSARY OF TERMS
POLICY PERIOD

Normally 12 months from a date to be agreed, this is usually the first of the month, the policy
covers losses arising goods sold and delivered and or services rendered within the policy
period. The policy is non-cancellable and must therefore be viewed as a 12-month minimum
commitment. Cover normally commences for goods sold once they have been delivered and
for service once the invoice has been raised.

VAT

Vat is excluded from the policy and credit limits and claims reflect this.

ESTIMATED TURNOVER

This figure should exclude VAT, cash sales, inter-company sales, sales made to Government
departments and nationalised industries and sales on confirmed irrevocable letters of credit.
Generally the premium rate reflects the level of insured turnover and the higher the turnover,
the lower the rate.

PREMIUM RATE

The premium rate is based on your estimated insurable turnover; some companies charge you
an extra premium for export sales to countries outside of the EU and OECD.

ESTIMATED ANNUAL PREMIUM

The premium on some polices is based on the estimated insured turnover multiplied by the
premium rate, this gives the estimated annual premium.

MINIMUM ANNUAL PREMIUM

Premiums are normally paid by monthly or quarterly deposits with an adjustment at the end of
the policy period based on the actual insured turnover. This means that you might owe an
additional premium based on the agreed rate or that you get a return of premium. However the
minimum annual premium always applies and if your declared turnover is a lot less than your
estimated turnover you will not get a full pro rata return.

FIXED PREMIUM

Some policies are based on a fixed, in these cases there is no declaration required or any
additional/ return of premiums.

DECLARATION OF TURNOVER

Unless the premium is fixed a declaration of insured turnover will be required, these are
usually done annually but some companies want the information monthly or quarterly.

INSURANCE PREMIUM TAX

 This is currently 5% of the estimated, minimum or fixed. Where the premium is variable the
final amount of tax is calculated with the declaration of insured turnover. Insurance premium
tax is but not payable on exports.

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ANNUAL POLICY CHARGE

Some insurance companies charge an annual fee of between £250 and £500 as a basic
administration cost.


MAXIMUM LIABILITY

The maximum value of total claims that will be paid for any 12 month period, this is very
similar to a maximum sum insured on other commercial policies. Some policies also have a
maximum individual credit limit written into their policies as well as a maximum annual
liability

INSURED PERCENTAGE

Most policies are written with an indemnity level of between 80% and 90%.

EXCESS

All policies have an excess, there are various different ways of expressing this, and the
following are examples of the different types.

 Minimum Retention: Your excess is the greater of either the minimum retention or the
  uninsured percentage, for example a loss of £4,000 on a policy with 90% indemnity and a
  £1,000 Minimum Retention would settle @ £3,000. This is because £1,000 is more than
  10% of the loss.

 Each & Every Excess: Your excess is the uninsured percentage and the each & every
  excess, for example a loss of £4,000 on a policy with 90% indemnity and a £1,000 each &
  every excess would settle @ £2,700. This is because £1,000 each & every is taken off first
  & the 10% uninsured percentage.

 Threshold: In this case if the loss is equal to or less than the threshold there is no claim,
  if it exceeds the threshold you get the insured percentage of the total amount. For example
  a loss of £4,000 on a policy with 90% indemnity and a £1,000 threshold would settle @
  £3,600. This is because the loss is greater than £1,000 and therefore 90% of the total debt
  is paid.

CREDIT LIMITS

These are subject to variation at the insurance companies discretion; if a limit is reduced or
cancelled then you will of course remain covered for goods and services already outstanding.
The policy can be adapted to also cover you for binding contracts entered into prior to any
reduction of the credit limit.




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DISCRETIONARY LIMIT

You must have a credit limit on all customers that you require insurance on, however you
only need a formal credit limit decision customers who owe you in excess of the discretionary
limit. For balances below this figure there are several choices on how to set an insured credit
limit, for example a report from an approved status agent such as Dun & Bradstreet or ICC
can be accepted. The other alternative for existing customers is to use the historic payment
experience as the means of setting the insured limit. Payment experience needs to be
satisfactory to set an insured credit limit.

CREDIT LIMITS CHARGE

All insurance companies charge you for credit limit applications, some specify the cost per
request, others charge a fixed fee and some do not express it separately but do build it into the
premium. Generally the credit limits need to be renewed each year and a further fee is payable
for doing this.

MAXIMUM TERMS OF PAYMENT

It is straightforward to agree longer terms of payment for specific customers; however these
must be done at the time of applying for each credit limit. The terms of payment agreed for
each customer should be on each invoice that you raise.


MAXIMUM EXTENSION PERIOD

This refers to the number of days after due date when the insurance company must be notified
of non-payment of an overdue debt with an insured customer, after this point further supplies
are not insured. This is a key part of the policy and a claim will probably be rejected if you
have not reported properly.

RESERVATION OF TITLE

Euler Hermes & Gerling NCM insists that you have a valid and enforceable all monies
retention of title clause; there are some cases where this is not applicable for example, fresh
food and exports. In time the other insurance companies will probably follow suit.

WORK IN PROGRESS / CONSIGNMENT STOCK / WORK DONE ON SITE
APPLICATIONS

A standard policy covers goods sold and delivered, any variations are normally added by
endorsement and for most there is normally an additional premium payable.

CONTRA TRADING

Most companies will net off the balances on the sales and purchase ledgers to arrive at a net
loss for claims purposes.

OTHER ADVERSE INFORMATION

You should report adverse information as soon as you become aware of it, basically anything
that would lead you to think that there is a problem should be reported. Examples will include
unpaid cheques, insolvency, collection or legal action, rescheduling of debts, on account
payments. Again if you do not report properly a claim will probably be rejected.



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COLLECTION COSTS

Some policies include collections and legal costs as part of the overall premium, others charge
you separately and some just let you do it yourself or via your own solicitors.


CLAIMS

Most claims are settled on the heading of some sort of insolvency occurring, we occasionally
we do see claims under the heading of protracted default, an example of this would be that a
customer disappears or simply will not pay.

DISCLAIMER

The above information has been produced only as a general guideline as each insurance
company has its own unique policy wording; please refer to the specific policy wordings for
full details.




                     Paul Humphreys Credit Insurance Services Ltd
                is a member of the General Insurance Standards Council




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