FAQs
Frequently Asked Questions About Insurance Premium Financing
What is Premium Financing?
In order to preserve cash flow or for other economic considerations, a company or professional practitioner (an “insured”) may choose to finance the cost of their insurance coverage. After an insurance agent places coverage with an insurance company on behalf of an insured, the insured may then request that the insurance agent arrange the financing of the insurance coverage. The insured signs a premium finance agreement which is then submitted by the insurance agent to a premium finance company, such as Standard Funding Corp. The premium finance company then pays the insurance premium on behalf of the insured.
What is the relationship between an insured and the premium finance company?
By financing their insurance, the insured has entered into a loan contract with the premium finance company and has given the premium finance company the authority to cancel the financed insurance coverage in the event the insured defaults in making scheduled loan payments. By financing their insurance, the insured has also given the premium finance company a security interest in any unearned insurance premiums which, when received by the premium finance company, are applied to the outstanding loan balance due from the insured.
What payment options are available for premium financing?
In general, payment plans available under an insurance premium finance arrangement consist of a down payment followed by equal, monthly installments. The amount of down payment required, as well as the number of installments to be paid by the insured, may vary depending on the underlying insurance policy terms and conditions, the nature of the insured’s business and the credit worthiness of the insured. The complete terms of the premium finance loan, including the payment schedule and interest rate charged, are reflected on the finance contract.
What are the Benefits of Premium Financing?
- Improved Cash Flow
The financing of a policy eliminates the need for an insured’s lump-sum payment to the insurance company. This preservation of capital gives clients greater control of their cash flow, preserves credit lines and improves their balance sheet. - Consolidated Insurance Payments
Multiple policies can be placed on one finance agreement providing a single payment plan for all necessary insurance coverage. Also, insurance policies that may be effective at a later date can be subsequently placed onto an existing financed account. - No Lengthy Approval Procedures
The approval process for a premium finance transaction is generally more streamlined than that of other secured loans and is usually completed the same day it is requested. - Fixed Rate
Unless otherwise specified, the annual percentage rate remains the same for the life of the premium finance loan. - Tax Deductible Interest on Loans
On commercial premium finance transactions, the loan interest may be a tax deductible expense. For further information, you should contact your tax advisor. - Loan Prepayment
An insured may prepay their premium finance loan at anytime. In most states, early payment will not result in additional charges beyond the interest earned until the time of prepayment.
Who can finance their insurance?
Virtually any insured business or professional practice is eligible to finance their commercial insurance coverage.
Will a policy be reinstated if payment is made by the insured after the policy has been canceled by the premium finance company?
Although a premium finance company can request reinstatement of insurance coverage it has cancelled, the decision to reinstate the coverage can only be made by the insurance company.
Can a policy be financed for an insured operating under bankruptcy court protection?
A premium finance company can make a loan to an insured operating under bankruptcy court protection as long as the appropriate court approval is secured.
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