Premium Financing

Premium financing is the lending of funds to a person or company to cover the cost of an insurance premium. Premium finance loans are often provided by a third party finance entity known as a premium financing company; however insurance companies and insurance brokerages occasionally provide premium financing services through premium finance platforms. Premium financing is mainly devoted to financing life insurance which differs from property and casualty insurance. 

To finance a premium, the individual or company requesting insurance must sign a premium finance agreement with the premium finance company. The loan arrangement may last from one year to the life of the policy. The premium finance company then pays the insurance premium and bills the individual or company, usually in monthly installments, for the cost of the loan. 

Typically, clients that engage in this transaction are age 29 to 75; with net worth of $5MM or greater. 

Benefits

There are a number of benefits to financing insurance premiums. These include: 

• Eliminates the      requirement for a large up-front payment to an insurance company.
• Multiple      insurance policies can be attached to a single premium finance contract,      allowing for a single payment plan to cover all insurance coverage.
• Premium      financing is often transparent to the individual or company insured.      Brokers transmit the completed premium finance agreement to the premium      finance company, and the policy holder is billed as they would be for any      other typical insurance policy.
• Allows for      clients to obtain needed coverage without liquidating other assets.
• The main      benefit in premium financing is avoiding the opportunity cost in paying      out of pocket. By using other people's money (leveraging a lender's      capital), clients can retain a significant amount of capital.
• Typical client      profile: Age 29 to 75; Net Worth $5MM or greater; Business-owner,      entrepreneur, professional; Desire to retain capital whilst maximizing      wealth transfer & potential tax-free retirement