What is Premium Financing?

Similar to an auto or home loan, “premium financing” is an arrangement with a bank or lending institution that allows you to pay your insurance premium over time rather than all at once.

This payment option is available when your insurer only accepts payment in full for your policy. By the way, it’s recommended you pay the policy in full if you are in a financial position to do so.

Many insurance companies will allow you to pay by credit card or via monthly installments, known as direct bill in lieu of allowing premium financing.

Be sure to ask your broker or agent about these methods of payment prior to agreeing to premium finance.

Keep in mind you may be offered a lower rate from a company that only allows a paid in full policy, but wind up paying more in fees and interest as a result of premium financing.

That said, there are fees associated with premium finance, not to mention the interest on your loan, which will increase the overall cost of your insurance.

You may also be subject to late fees, broker or agency fees as well as a cancellation fee.

The broker or agency fee is best described as the middleman fee. Similar to a mortgage loan, the broker or agent will collect a percentage of the premium as a fee for arranging the financing.

As with any other loan, you will make a down payment and continue to make monthly payments until the policy term ends or the policy cancels for any reason.

The insured, the insurance company, or even the finance company can cancel your insurance policy for a variety of reasons, all of which will be outlined in your policy and loan agreement.

It’s important to note that the financing agreement is between you and your lender. The insurance company is out of the loop at this point.

If your policy cancels for any reason, the remaining balance of unused premium is refunded to the lender.

Additionally, you are still responsible for paying the loan to the lender if a situation arises where you are in a dispute with your insurance company over a claim.

Contact your state department of insurance or an insurance agent to determine if your state allows premium financing, or shop online for premium financing quotes.

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This post was written by The Truth Team on January 4, 2010 Comments (0)