Premium Financing: A Primer (From The P&C Files)
So the other day, I saw an interesting thread on Twitter near “Premium Financing.” It piqued my interest, together with since we’ve never blogged on the subject, I asked the gentleman whose thread I was reading if he would hear explaining for our readers what it is together with how it works.
Tim Randle is a Certified Financial Planner amongst sixteen years’ sense inward the fiscal services industry. He’s besides an insurance agent, registered representative, together with investment advisor representative, together with lives inward Alabama, amongst his wife, two kids, together with two larger than expected dogs.
Take it away, Tim:
■ What is Premium Finance?
As a modest concern owner, I may endure from beingness a flake of a command freak. Ever hand off to you? With a fiscal planning theater that out of necessity grew its ain insurance agency, nosotros institute using the available premium finance companies to last expensive together with restrictive. How could nosotros pick? Could nosotros showtime our own? What were the rules on both?
To start, what is a Premium Finance Company (PFC)? At its root it’s a niche loan fellowship that provides funding for businesses (and sometimes individuals) to buy their larger commercial (business) insurance policies. If you’ve never purchased a commercial policy, you lot may last wondering “Why don’t they only select the monthly payment pick similar my auto insurance fellowship offers?” Unfortunately, most commercial insurers don’t offering a periodic payment plan—and amongst premiums that tin attain from thousands of dollars to tens of thousands, it doesn’t ever operate good to seat it on your credit card. On exceed of that, many companies don’t fifty-fifty take credit cards either…our recent investigation showed that it’s pretty typical for merchant services to cost 10 to 25 cents per transaction, addition upwards to near 2% of the amount charged. I guess they don’t hear paying the quarter, but the 2% of a $12,000 premium is painful! This is where premium finance companies (PFC) come upwards in.
A PFC industrial plant past times inserting themselves betwixt the agent together with the client (insured). The client typically pays 25% of the premium together with all of the taxes together with fees upwards front end to the PFC. The PFC thus pays whatsoever fees or taxes to whomever those monies are due, equally good equally paying the entire premium to the insurance company. The insured thus pays dorsum the PFC, typically inward 8 payments starting the adjacent month. If the client doesn’t brand their payment, the PFC has the correct to contact the insurance fellowship to cancel the policy. The PFC is hoping that the payments the client has made addition the refund from the insurance fellowship is plenty to forestall a loss.
■ How to select a PFC:
As a customer, you lot desire to create got that ane trace that says ‘Fees, Taxes, Surcharges’ together with come across what’s buried there. Does the PFC accuse a fee? Ok, that makes sense, I paid a mortgage origination fee…but is it a reasonable number? Does your agent accuse a fee, together with is it reasonable? What else is buried inward there? If your agent waves his mitt together with says ‘taxes’ you lot should inquire what the revenue enhancement charge per unit of measurement is together with how it’s applied. Finally, there’s the service accuse or the involvement that the client volition last charged on the loan. Typically the larger the loan the lower the rate. High teens isn’t abnormal for depression amounts, together with I’ve seen equally depression equally 8.5% on real large amounts. Some may last negotiable, approximately may not—a bully slice of advice hither is WORK EARLY. Some insurance companies give discounts for quoting policies several days earlier they larn into effect. And if you lot decided you lot desire to attempt a dissimilar agent or PFC, you lot may demand a calendar week or to a greater extent than to exercise it.
I promise that this helped you lot sympathise a fiddling to a greater extent than near financing insurance premiums on the commercial side, together with what behaviour on the PFC is able to create got on for both customers together with agents.
Thanks, Tim!
Tim Randle is a Certified Financial Planner amongst sixteen years’ sense inward the fiscal services industry. He’s besides an insurance agent, registered representative, together with investment advisor representative, together with lives inward Alabama, amongst his wife, two kids, together with two larger than expected dogs.
Take it away, Tim:
■ What is Premium Finance?
As a modest concern owner, I may endure from beingness a flake of a command freak. Ever hand off to you? With a fiscal planning theater that out of necessity grew its ain insurance agency, nosotros institute using the available premium finance companies to last expensive together with restrictive. How could nosotros pick? Could nosotros showtime our own? What were the rules on both?
To start, what is a Premium Finance Company (PFC)? At its root it’s a niche loan fellowship that provides funding for businesses (and sometimes individuals) to buy their larger commercial (business) insurance policies. If you’ve never purchased a commercial policy, you lot may last wondering “Why don’t they only select the monthly payment pick similar my auto insurance fellowship offers?” Unfortunately, most commercial insurers don’t offering a periodic payment plan—and amongst premiums that tin attain from thousands of dollars to tens of thousands, it doesn’t ever operate good to seat it on your credit card. On exceed of that, many companies don’t fifty-fifty take credit cards either…our recent investigation showed that it’s pretty typical for merchant services to cost 10 to 25 cents per transaction, addition upwards to near 2% of the amount charged. I guess they don’t hear paying the quarter, but the 2% of a $12,000 premium is painful! This is where premium finance companies (PFC) come upwards in.
A PFC industrial plant past times inserting themselves betwixt the agent together with the client (insured). The client typically pays 25% of the premium together with all of the taxes together with fees upwards front end to the PFC. The PFC thus pays whatsoever fees or taxes to whomever those monies are due, equally good equally paying the entire premium to the insurance company. The insured thus pays dorsum the PFC, typically inward 8 payments starting the adjacent month. If the client doesn’t brand their payment, the PFC has the correct to contact the insurance fellowship to cancel the policy. The PFC is hoping that the payments the client has made addition the refund from the insurance fellowship is plenty to forestall a loss.
■ How to select a PFC:
As a customer, you lot desire to create got that ane trace that says ‘Fees, Taxes, Surcharges’ together with come across what’s buried there. Does the PFC accuse a fee? Ok, that makes sense, I paid a mortgage origination fee…but is it a reasonable number? Does your agent accuse a fee, together with is it reasonable? What else is buried inward there? If your agent waves his mitt together with says ‘taxes’ you lot should inquire what the revenue enhancement charge per unit of measurement is together with how it’s applied. Finally, there’s the service accuse or the involvement that the client volition last charged on the loan. Typically the larger the loan the lower the rate. High teens isn’t abnormal for depression amounts, together with I’ve seen equally depression equally 8.5% on real large amounts. Some may last negotiable, approximately may not—a bully slice of advice hither is WORK EARLY. Some insurance companies give discounts for quoting policies several days earlier they larn into effect. And if you lot decided you lot desire to attempt a dissimilar agent or PFC, you lot may demand a calendar week or to a greater extent than to exercise it.
I promise that this helped you lot sympathise a fiddling to a greater extent than near financing insurance premiums on the commercial side, together with what behaviour on the PFC is able to create got on for both customers together with agents.
Thanks, Tim!
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