What is Premium Financing? Can’t I Just Pay Directly?

Premium financing is extremely common with property and casualty insurance issued in the Surplus Lines marketplace.  Whereas traditional ‘standard’ companies have billing programs set up to pay insurance premiums in regular installments, such as auto insurance on a monthly basis, almost all surplus lines polices require that the entire amount of the premium, including all taxes and fees, be paid in full at the time the policy is issued.

Since many clients either lack the ability to pay the premium all at once or would simply prefer to have smaller regular premium installments, premium financing  involves the lending of funds from a third-party company (oddly enough known as a Premium Finance Company) to cover the cost of these insurance premiums. This is similar to purchasing a new vehicle and financing the balance with a credit union. To finance a premium, you must sign a premium finance agreement (which we provide) with the company actually financing the premium. There is usually a 25% down payment (plus taxes and fees) to cover the ‘minimum earned premium’ charged by the insurance company issuing the policy and the finance company then pays the insurance premium in full and bills you, usually in monthly installments, for the cost of the loan.  As with any loan, the premium finance company charges interest for the loan, however, if the premium is paid off early the finance charge is pro-rated.

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