Structuring Trade Credit Insurance Endorsements for Key Customer Accounts
Key account trade credit endorsements convert concentrated customer exposures into bankable collateral, raising facility advance rates and securing liquidity.
Loss Payable Clause
Meaning
Commercial property and marine insurance contracts use specific provisions to direct claim payments to a third party who holds a financial stake in the insured asset. A loss payable clause ensures that any insurance payouts for damage to machinery or inventory are made jointly or directly to the lender or lessor. It protects the secured lender’s investment but does not grant them the right to manage the operations of the insured.
Security Interest
Lenders require a loss payable clause to be embedded in the policy before financing expensive manufacturing equipment. This addition ensures that the lender receives funds to repair or replace the asset if a loss occurs. The clause is registered in the policy schedule and tracked by the finance company.
Claim Settlement
Failing to include a loss payable clause in the insurance policy before securing an asset-backed loan can lead to a technical default under the financing agreement. If a claim is paid directly to the borrower and spent on other operations, the lender loses their security. The cost of an omitted clause is measured in accelerated debt payments and legal disputes.
Breach Protection
Acts or omissions by the borrower do not invalidate the loss payable clause.