No matter which cycle the insurance industry is currently riding out – soft or hard – premium financing remains a sensible option for business owners.
A Case for Commercial Insurance Premium Financing
If you already make it your practice to present your commercial insureds with a premium financing option, then you probably know everything there is to know about this service. If not, you must belong to a (still) large group of agents and brokers who consider premium financing to be an uncharted territory and belong to hot topics in insurance industry pre-2008. This is true for life insurance premium financing. For commercial insurance: not so much.
Here’s why you should at least consider the possibility of partnering with a premium finance company and having this option ready for your commercial clients: this is an attractive option for those who wish to retain control over their funds and pay their insurance coverage through a course of a number of months instead of giving up a vast amounts of money at once.
Premium financing is a loan that covers the cost of an insurance premium, provided by a premium finance company (or a bank). The idea behind this loan is a simple one: a company gets to retain the control over their funds. There is also the question of whether or not a client has the capacity to pay/of paying a large lump sum upfront, so this is where premium financing particularly stands out as a sensible option to consider.
Premium financing enables your clients to retain control over their assets and pay the money back in monthly installments. This is a particularly reasonable option for business owners, who are often facing the reality of expensive commercial insurance policies.
The Premium Financing Process
The process is relatively straightforward. A client/business owner purchases insurance through an Insurance agency. In order to provide a comprehensive service, the agency offers the possibility of premium financing to a client. If the client wants to explore that option, the agency then hunts for the most sensible option while getting in touch with multiple premium financing providers or just one – usually, the one that agency already works/partners with. Premium finance company/bank offers loan terms and payment options to which a client ultimately agrees. A client then signs a Premium Finance Agreement (PFA) and provides a down payment (in most cases 25 percent of the total premium on a policy). Note that premium financing duration is always less than the life of the policy. The last step in the process: Premium Finance company funds the balance of the loan and the client repays the company in monthly installments.
Is Your Client a Good Fit for Premium Financing Service?
This is something that an agent/broker and the client will have to decide by having an open, honest conversation about pros and cons of premium financing. Business owners respond well to valuable information and an open discussion that they can learn from and plan for their future. By taking a highly personalized approach and by gathering relevant data about their line of business, agents/brokers will be able to help clients make an informed decision about their insurance coverage and the (re)payment options.
Premium Financing Service Pros:
- Premium financing option can cover multiple insurance policies in one service
- Insurance agents/brokers and Premium Finance companies take care of the tedious paperwork
- If an agent works with a Premium Finance company, a client doesn’t have to worry about the credit score or go through the process of approval
- The power of retained capital: by opting for repaying for the policy (or policies) over a determined span of time, business owners can hold on to their money which they can invest in potent areas where they’ll see a greater return on their investment
- Bypassing the need to liquidate any assets because of the fear that they won’t be able to pay premiums (until the end of policy)
Main Takeaways For Insurance Agents/Brokers
- Help your customer reach an informed decision about premium financing
- Make sure to familiarize the customer with the intricacies of the whole process, leave nothing out
- Choose a good/solid Premium Finance provider partner
- Premium financing is a solid option for business owners who want to retain control over their finances during the life of an insurance policy
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GST Software, Inc. recently partnered with Columbia Pacific Finance in Montana and co-developed a tech-based premium financing service that eliminates unnecessary paperwork and saves one thing Insurance agents don’t have: time.