My Business Bonanza

One of the important parts of insurance is that it can work for credit extension.  Extending credit is an important part of business deals today.  Here is how insurance can help with the issuance of credit.

Businesses and insurances

An easy way to understand the role of insurance and credit is to look at mortgages.  Few people have the ability to pay for a house outright.  However, a mortgage company will not want to lend money to someone that it considers to be a financial risk.  Because of that, most mortgage companies require a person to take out a homeowner insurance policy on their home before they will extend credit.

This philosophy actually applies to a lot of businesses.  Most businesses will not extend credit to a buyer without having some sort of assurance that they will get their money back.  They often require insurance of the goods that they sell.  If you are going to get a loan from the bank for a large purchase, then the property has to be insured.  The same goes for many businesses.

How insurance companies think

With some insurance policies, the role that they play is pretty obvious.  For instance, fire insurance helps protect against property and supply damage in the event of a fire.  Therefore, if you are taking out a mortgage payment, you would need fire insurance on your home so that the mortgage company knows that it will get its money back should your house burn down. 

Something like life insurance does give the same assurance to the company.  Think of the CEO or general manager of a company.  What happens to that company if that person is killed in a car accident on the way to work?  If they have life insurance, the business goes on as usual, and that person’s personal debts are settled.  Life insurance also covers things like mortgage payments and auto loans should the debtor die while still making payments on the loan.  If that person doesn’t have life insurance or discount auto insurance then the family could be left trying to repay that debt.

Other forms of insurance

This train of thought can also be applied to other forms of insurance.  If you can agree that life and fire insurance are important for a company, and that if something should happen to the person in charge it would be considered a financial risk, then you can also agree that the health of that same person is also important.  And if that person’s health is important, wouldn’t the health of the employees who actually run the machines or do the legwork be as important?  That is where the concept of individual health insurance comes in.  Healthy employees are more productive employees, so protecting their health is an important part of running a good business.

Basically, any form of insurance helps to lend credibility to a person or business that is looking to take out a loan.  The more assurance that a creditor has that the loan will be repaid, the more likely they are to issue the loan in the first place.  Therefore, having insurance will help make it easier to get credit.

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