Workers' Compensation Premium Financing
Workers' compensation is often one of the largest insurance costs for businesses with employees, and it is a coverage most employers cannot go without. For contractors, trucking companies, restaurants, manufacturers and other payroll-heavy businesses, the premium can be a significant payment at the start of the policy term. Premium financing is one way to spread that cost out.
This page explains how premium financing applies to a workers' compensation policy, the features of workers' comp that make financing different from other lines, and what to discuss with your agent.
How financing a workers' comp premium works
The process is the same as for other commercial policies:
- 1Your insurance agent obtains a workers' compensation quote from an insurer.
- 2Your agent requests a premium finance quote showing the down payment and payment schedule.
- 3You review and sign a premium finance agreement that discloses the finance charge, any fees and the payment terms.
- 4You pay the down payment, usually through your agent.
- 5After approval, the premium finance company pays the financed premium to the insurer or its authorized representative.
- 6You make scheduled payments under the agreement.
The workers' comp policy itself is issued by the insurer, and financing does not change what the policy covers.
What makes workers' comp different: payroll and audits
Workers' compensation premiums are based largely on estimated payroll by job classification, along with factors such as the business's claims experience. Because the premium starts as an estimate, most workers' comp policies are auditable. After the policy term, the insurer reviews actual payroll and adjusts the premium.
That has two practical effects for financing:
- The financed amount is based on the estimated premium. If your payroll grows during the year, the audit may produce an additional premium. How that additional premium is billed or financed depends on the insurer and your premium finance agreement. Terms vary; see your premium finance agreement.
- If payroll is lower than estimated, the audit may result in a return premium from the insurer, which is handled under the policy and, where it applies, the premium finance agreement.
Accurate payroll estimates help avoid large surprises at audit time. Talk with your agent about estimates that reflect your actual hiring plans.
Minimum and deposit premiums
Some workers' compensation policies include a minimum premium or a deposit premium. These affect how much of the premium can be financed and how much may be retained by the insurer if the policy is cancelled early. Your agent can tell you whether your policy has these features, and the finance quote and agreement will reflect them.
Financing compared with pay-as-you-go
Some insurers and payroll providers offer pay-as-you-go workers' comp, where premium is calculated and collected each payroll period based on actual wages. Premium financing is a different tool. It finances a quoted premium under a separate agreement and payment schedule.
| Premium financing | Pay-as-you-go | |
|---|---|---|
| Who you pay | The premium finance company | The insurer, usually through your payroll provider |
| Payment basis | Fixed schedule in the agreement | Actual payroll each pay period |
| Availability | Depends on the policy and approval | Depends on the insurer and payroll provider |
| Cost | Finance charge and any fees in the agreement | Insurer and payroll-provider terms |
Neither is right for every business. Your agent can help you compare them for your policy.
Who commonly considers financing workers' comp
- Contractors and trades with crews whose payroll changes with the work
- Trucking and logistics companies with drivers and warehouse staff
- Restaurants and hospitality businesses with large hourly staffs
- Manufacturers and industrial businesses with production-floor payroll
- Growing businesses adding employees during the policy term
Questions to discuss with your agent
- Is my workers' comp policy auditable, and how is an audit adjustment billed?
- Does the policy have a minimum or deposit premium?
- What is the total cost of financing compared with paying in full or using an insurer plan?
- What happens to my coverage if a financing payment is missed?
Frequently asked questions
Can I finance a workers' compensation premium?
Workers' comp premiums can often be financed through a premium finance company. Each policy is reviewed individually and financing is subject to approval and a signed premium finance agreement.
What happens to my financing after a payroll audit?
An audit can increase or decrease the premium. How an additional premium from an audit is billed or financed depends on the insurer and your premium finance agreement. A return premium is handled under the policy and, where it applies, the premium finance agreement.
Is premium financing the same as pay-as-you-go workers' comp?
No. Pay-as-you-go collects premium each payroll period based on actual wages. Premium financing pays the quoted premium to the insurer and you repay the finance company on a fixed schedule.
What happens if I miss a financing payment?
The premium finance agreement may allow the finance company to cancel the policy on your behalf after the required notices. Going without workers' comp can have serious legal consequences for an employer, so contact us or your agent right away if you expect a problem.
How do I get started?
Ask the insurance agent who places your workers' compensation policy to request a premium finance quote from Premium Financial Partners Co.
Premium 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.