What Trade Credit Insurance Actually Covers (and What It Doesn't)

Your buyer is 90 days past due. You have trade credit insurance. You expect to file a claim and recover the loss. Then your broker walks you through the policy language — and the picture gets complicated.
TCI covers specific losses under specific conditions, not all nonpayment. The exclusions, waiting periods, per-buyer credit limits, co-insurance structure, and notification requirements all determine whether a policy actually performs when a buyer defaults. Understanding those mechanics before you need to file is the difference between a policy that protects you and one that disappoints you when it matters most.

What TCI Is Designed to Cover

Trade credit insurance is built around two core categories of covered risk.
The first is commercial credit risk: buyer insolvency — formal bankruptcy, receivership, or administration — and protracted default, meaning the buyer simply doesn't pay past the policy's waiting period.
The second is political risk, but only where it's explicitly included: transfer and convertibility restrictions that prevent payment, political violence that disrupts the buyer's ability to pay, or government-ordered cancellation of an import license.
What TCI pays is not the gross invoice value. A covered loss under most policies means the net credit loss after the annual aggregate deductible is absorbed and after co-insurance is applied. The starting point is that the insured recovers a portion of the net loss — not a full reimbursement of the outstanding balance.

The Main Exclusions

One of the most common first-claim surprises involves buyer disputes. If the buyer claims that goods were non-conforming, not delivered as described, or didn't match the purchase order, most policies won't pay. The reason is straightforward: there's no admitted debt. The buyer is contesting the underlying obligation, not simply failing to pay it.
The insurer's position is typically that the dispute needs to be resolved first — through commercial negotiation, arbitration, or litigation — before a covered credit loss can be established. TCI buyer dispute coverage is limited or absent in most standard policy forms, and exporters who treat a disputed invoice the same as a clean unpaid invoice often discover the gap at the worst possible time.
### Per-Buyer Credit Limits
Every TCI policy assigns a credit limit per buyer — the maximum amount of coverage available for that account at any given time. Exposure above that limit is uninsured.
This creates a risk that's easy to overlook when a buyer relationship is healthy and growing: balances can creep above approved TCI credit limits incrementally, invoice by invoice, until a meaningful uninsured gap exists. Reviewing live exposure against approved limits is a routine credit management task, but one that often falls behind during periods of strong commercial momentum.
### The Waiting Period
TCI doesn't pay the moment an invoice goes past due. Most policies require that a buyer be 90 to 180 days past due before a protracted default claim is eligible — this is the trade credit insurance waiting period. During that window, the exporter carries the risk.
The waiting period also interacts with the notification requirements discussed below, because the clock on notification obligations often starts running well before the claim becomes eligible. The waiting period is not a flaw in the product; it's a design feature that filters out slow-pay situations from genuine default events. But exporters who expect immediate relief after a missed payment will find that the policy was never structured to provide it.
### Political Risk — Only Where Included
Standard commercial TCI covers commercial default — insolvency and protracted non-payment — not government-ordered payment blocks, transfer restrictions, or political violence. If your buyer is unable to pay because a currency control prevents the transfer, or because a government has canceled an import license, that loss may not be covered under a basic commercial policy.
Political risk typically requires a rider or a separate political risk facility, and the premium and underwriting terms differ from commercial coverage. Exporters selling into markets with elevated sovereign risk should verify explicitly whether their policy extends to political causes of nonpayment.
### Extended Credit Terms
If you shipped on net-120 when the policy was underwritten assuming net-90 payment terms, the insurer may contest the claim or reduce the indemnification. TCI policies are underwritten against specific commercial terms. Deviating from those terms — particularly by extending credit beyond what was disclosed — can give the insurer grounds to treat part of the outstanding balance as uninsured.
### Known Circumstances and Pre-Existing Disputes
Most policies include a "known circumstances" clause that excludes losses that were already foreseeable before policy inception. If a buyer was already in arrears, in financial distress, or subject to a known dispute when the policy was bound, claims arising from that situation may be excluded.
### Related-Party Transactions
Sales to affiliated companies, subsidiaries, or entities under common control are typically excluded from TCI coverage. The policy is designed to cover arm's-length commercial credit exposure, not intercompany receivables where the credit decision isn't truly independent.

The Co-Insurance and Deductible Math

Most TCI policies include two separate haircuts on a covered claim.
The first is an annual aggregate deductible — a first-loss threshold that the insured absorbs in full each policy year before the insurer pays anything. This deductible keeps the insured engaged in active credit management rather than relying entirely on the policy.
The second is co-insurance. Most policies pay 80 to 90 percent of the covered loss, with the insured retaining the remainder. The co-insurance retention ensures the insured has meaningful financial exposure to credit outcomes and continues to exercise judgment.
To make this concrete: a $500,000 protracted default, net of a $40,000 annual aggregate deductible already absorbed and with 85 percent co-insurance, yields an indemnification of approximately $390,500 — not $500,000. That's still a meaningful recovery, but it's materially less than the gross outstanding balance. Knowing this math in advance changes how an exporter thinks about the financial cushion the policy actually provides.

Notification Timing — Why It Matters

Most TCI policies require the insured to notify the insurer when a buyer exceeds a defined number of days past due — typically 30 to 60 days after the expiry of maximum credit terms. Missing that notification window can void an otherwise valid claim. The insurer's rationale is that early notification allows them to monitor the situation and advise on collection strategy.
Running alongside the notification obligation is a duty to document collection efforts. An insurer evaluating a protracted default claim will typically want evidence that the insured actively pursued recovery — demand letters, escalation steps, records of communication with the buyer. These requirements aren't onerous, but they need to be in place and documented from the moment a payment falls overdue.

Three Questions to Ask Your Broker Now

Most TCI policy disappointments are foreseeable. Here are three questions that surface the most common gaps before a buyer defaults, not after.
**First:** What are my per-buyer credit limits, and are any live balances currently above them? If you don't know the answer from memory, pull the schedule and check it against your current receivables. An unapproved exposure isn't covered.
**Second:** What is my waiting period, and what are my notification obligations before I can file a claim? Understand both the timeline and the administrative steps required — and make sure your AR team knows them.
**Third:** Does my policy include political risk coverage, or only commercial default? If you're selling into markets with transfer restrictions or political volatility, the answer determines whether your policy is fit for purpose in those markets.
If you can't answer all three from your current policy document, the right time to ask your broker is now — before a buyer defaults, not after.

Work With Impello

If you're evaluating whether your current TCI structure covers what you think it covers, Impello Global works with exporters to review policy structure, identify coverage gaps, and access the private credit insurance market.

This post is for informational purposes only and does not constitute legal, financial, or insurance advice. Policy terms vary. Consult your broker or legal counsel before making coverage decisions.