Political risk insurance is insurance that protects against losses incurred as the result of certain types of political activities. This type of insurance is typically purchased by companies doing business in foreign countries.
Risks that are typically covered by this kind of insurance include deprivation, currency inconvertibility, nationalization, confiscation, terrorism, and export credit.
Political risk insurance is often necessary for companies who invest in businesses located in politically unstable countries. Without political risk insurance, companies may view it as too risky to do business with companies in certain nations.
Sometimes, entire currencies can be destroyed through inflation, as was the case with Zimbabwe during the early 2000's. Political risk insurance defends against losses relating to these kinds of currency events.
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