Summary
Premium financing is a tool used by insurance companies to offer their policies in installments. This solution, which involves partnering with a payments company, allows customers to break down the cost of their insurance policy into manageable monthly payments.
Players
Definition
Premium financing is a service provided by insurance companies that allows customers to pay their insurance policy in installments instead of one lump sum. This option involves partnering with a payments company to break down the cost into monthly payments, resulting in a slightly higher overall cost. The premium finance rate is calculated using a simple formula that takes into account the upfront rate, number of installments, and total premiums. Ultimately, whether paying in full or in installments, the goal is to invest in financial security.
Advantages
When faced with the high cost of a life insurance policy, financing the policy through a loan secured against its cash value is a smart option. Many banks and financial companies offer insurance premium financing, making the process of getting the loan you need relatively easy. The main advantage of premium financing is that you don't have to use your own cash or assets to pay for the policy, which is especially helpful if you have limited resources or want to keep your assets liquid. However, one potential downside is that payments are often required over a long period, resulting in paying more in the end compared to paying the full price upfront.
Reasons to consider premium financing
Clients expect installments
Insurers can acquire and retain new clients by offering predictable monthly payments for financing healthcare and insurance, which is something people want.
Insurtech needs new clients
Insurtech companies can attract new clients who may not have enough money for lump-sum premium payments and increase the likelihood of repeat business by using premium financing.
Customers can't afford large bills
When payments are too large to handle in a lump sum, premium financing enables customers to pay back their insurance loans over time, making it an attractive option.
Insurance companies don't offer installments
Premium financing can help clients get their policy with monthly payments instead of a lump sum, especially if the insurance company does not offer installment options.
Bills can exceed credit card limits
Lenders can help clients pay large commercial or healthcare policy bills that may exceed credit card limits by providing premium financing.
Insurance premium financing for businesses
Businesses can obtain a large amount of insurance coverage without significantly impacting their cash flow or investments, which is useful for insuring against potential risks.