What Is Insurance Premium Financing?
Insurance premium financing is a way for a business to pay for an insurance policy over time instead of all at once. A premium finance company pays the policy premium to the insurer on the business's behalf, and the business repays the premium finance company in installments under a written premium finance agreement.
This guide explains how premium financing works for commercial insurance, who tends to use it, what the agreement covers, and the questions worth asking before you sign.
How premium financing works
Most premium financing follows the same basic steps:
- 1Your agent places the coverage. You and your insurance agent or broker choose the policy and the insurer quotes a premium.
- 2Your agent requests a finance quote. The quote shows the amount to be financed, the down payment and the proposed payment schedule.
- 3You review and sign the premium finance agreement. The agreement discloses the finance charge, any fees and the payment terms before you sign.
- 4You pay the down payment, usually through your agent.
- 5The premium is paid to the insurer. After approval, the premium finance company pays the financed premium to the insurer or its authorized representative.
- 6You make scheduled payments to the premium finance company until the balance is paid.
The insurance policy and the premium finance agreement are two different contracts. The policy is between you and the insurer. The agreement is between you and the premium finance company.
Why businesses finance premiums
Commercial insurance costs can be significant, and the full premium is often due at the start of the policy term. Businesses commonly consider premium financing to:
- Spread a large cost across the policy term instead of paying it in one lump sum at renewal
- Keep cash available for payroll, materials, equipment or seasonal expenses
- Pay for policies without insurer installment options, which is common for surplus lines, specialty and larger commercial policies
- Bring several policies onto one payment schedule where the policies and agreement allow it
Financing has a cost, so it is not the right choice for everyone. A business with enough cash on hand may prefer to pay in full and avoid finance charges. The decision comes down to comparing the total cost of financing with the value of keeping that cash in the business.
What the premium finance agreement covers
Agreements differ, but most include:
- Amount financed: the premium, and any taxes and fees included in the financing, minus the down payment
- Down payment: the amount due before the premium is funded
- Finance charge and fees: the cost of financing, plus any fees the agreement and applicable law allow, such as late or returned-payment charges
- Payment schedule: the number of payments, amounts and due dates
- Power to cancel: agreements commonly authorize the premium finance company to cancel the policy on the insured's behalf if payments are not made as agreed, after the notice required by the agreement and applicable law
- Return of unearned premium: if a financed policy is cancelled, any unearned premium the insurer returns is generally paid to the premium finance company and applied to the account as the agreement and applicable law provide. Terms vary; see your premium finance agreement.
Read the agreement closely. It, not a website or a quote summary, controls the terms of your financing.
Which policies can be financed?
Premium financing is common across commercial lines, including general liability, workers' compensation, commercial auto and trucking, commercial property, package policies, umbrella and excess liability, and many specialty and surplus lines policies. Whether a specific policy can be financed depends on its terms, such as audit provisions or a minimum earned premium, the insurer, and approval.
Premium Financial Partners Co. focuses on commercial insurance and works through insurance agents and brokers.
Premium financing vs. other ways to pay
| Option | How it works | Points to consider |
|---|---|---|
| Pay in full | One payment to the insurer at the start of the term | No finance charge; uses the most cash up front |
| Insurer installment plan | The insurer bills in installments | Not offered on every policy; may carry installment fees |
| Premium financing | A premium finance company pays the insurer; you repay in installments | Available on many policies without insurer plans; has a finance charge and a separate agreement |
Questions to ask before you sign
- What is the total cost of financing, compared with paying in full?
- How much is the down payment, and when is it due?
- What are the payment dates, and how can I pay?
- What happens if a payment is late or missed, and what notices will I receive?
- How are audits, endorsements and mid-term premium changes handled?
- If the policy is cancelled, how is any returned premium applied?
Your agent can help you compare the options, and the agreement answers these questions for your specific policy.
Frequently asked questions
Is premium financing a loan?
Premium financing is a type of credit used to pay an insurance premium. It is documented in a premium finance agreement that sets out the amount financed, the finance charge, any fees and the payment schedule.
Who offers premium financing?
Premium finance companies offer it, usually through the insurance agent or broker who places the policy. Some insurers offer their own installment plans, which are different.
Can my policy be cancelled if I miss a payment?
Yes, it can be. Premium finance agreements typically allow the finance company to cancel the policy on your behalf if payments are not made as agreed, after the notices required by the agreement and applicable law.
Does financing change my insurance coverage?
No. Financing changes how the premium is paid, not what the policy covers. Coverage is determined by the insurance policy.
How do I get a premium finance quote?
Ask the insurance agent or broker who is placing your coverage. They can request a quote from Premium Financial Partners Co. for your policy.
Considering financing for a commercial policy? Ask your agent to request a quote, or contact us to learn more.
Start Your QuotePremium Financial Partners Co. is an insurance premium finance company. We are not an insurance company and do not issue, sell, or underwrite insurance or provide insurance advice. All financing is subject to credit and underwriting approval and to a premium finance agreement signed by the insured. Finance charges, fees, down payment, and payment terms are disclosed in the premium finance agreement before you sign. Your insurance policy may be cancelled for nonpayment in accordance with your premium finance agreement and applicable law. Rates, terms, and availability vary and are not guaranteed. Products may not be available in all states.