Category: Insurance

How Insurance Premium Financing Works

This concept is not new to many business holders, it is a loan taken by a business to purchase insurance policy like life insurance or retirement insurance. It’s a strategy used by many purchasers e.g. Entrepreneurs, and business holders highly depend on this premium. Businesses do enjoy protection of the policy with no negative impact on their cash flow. When they receive the funds to pay a premium the borrower is required to pay the interest on the loan. This article aims to enlighten you on How Insurance Premium Financing Works 

Requirements for qualification 
Conditions vary from one company to another depending on their terms and conditions. For one to know How Does Insurance Premium Financing Work, one needs to know what he / she is required of him/her. Ideally, most of the companies will require you to have filled an application form which includes premium finance agreement, a certificate of registration for business borrowers, company pin, tax compliance certificate, partnership deed, evidence of assets and companies net worth among others. All these documents will be used to confirm whether you are eligible for the loan and as well as financing the insurance premium. 

Risk and mitigation. 
Before an insurance financing company grants an applicant a loan, they do consider risks that may arise and how they can mitigate them. 
Hey include:- 

 * Personal risk- these affect the income or net worth. Although it is not highly regarded as a major risk lenders do consider it because of annual finances review by banks in order to make sure if they do still qualify for the assigned loan amount. 

* Liquidity- these measures the ability of the client to be able to pay loan easily if need be. Financial insurers will want to see additional amounts available to recover the loan in case of difficulties in repayment. 

* How Does Insurance Premium Financing Work with interest rate risk and policy performance? Low and high rates of interest affect the policy performance directly proportional. This leads to an additional collateral input to keep the policy in force. 

* Collateral risk- in case one defaults from payment of the loan, what will stand in as a settlement of the loaned amount? It is what the borrower is willing to post as additional to the insurance policy that potentially stands in place. These should be agreed by the two parties. 

Once there is satisfaction to the financial institution with the risks involved, then a credit of the loan is meant to finance your premium insurance. 

Loan repayment 
  After being considered for the insurance premium financing, don’t get carried away in such a way that you forget to make arrangements for your loan repayment. Defaulting will lead you to lose the finance and your assets will be confiscated for the recovery of their finance. Keeping your promise as per the agreement will build your portfolio. Having gotten the answer on How Does Insurance Premium Financing Work, you are good to go with the information and be able to move on to the next stage. 
Financing insurance premium is a complex process that requires one to be familiar with steps involved, but it has more values and benefits. It will be good for those looking for the premium to go through these articles and as well it is advisable to get an expert to take you through in case you lack knowledge. These will make you make a good decision before venturing into it.  

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Categories: Insurance


What is insurance premium financing all about?

Insurance premium financing, IPF in short, is a loan product given to the insured to pay for insurance premiums in life insurance by a third party. This is done by signing an agreement between the customer, insurance company, who is the guarantor, and the bank which provides the money for the loan or simply finances the process (financier).  

premium insurance is dedicated to finance life insurance. After signing the agreement, that can go up to a year or until the policy matures, the bank which is the premium finance company pays the premium and charges the customer or the company taking the loan and this is paid in monthly intervals. 

The types of insurance premium finance in life insurance 

Traditional recourse premium finance (estate premium-oriented) 

In this, the customer agrees to a securitized loan with intent to hold that loan until the policy matures. This insurance premium is bought for estate exchangeability demand. Therefore, this can be very helpful to those customers that have a large net worth e.g. $5 million and above. 

Non-recourse premium finance  

This type of premium finance is available for the customer who may not have a high net worth but makes a goodly earning e.g. $200,000. Cash is the accepted security making it unsuitable for customers with illiquid assets. Also, the securitized investment may be held by the customer’s investment team so long as it is guaranteed with third party verification, yearly. 


  • Removes the demand for a large in-advance payment to the insurance company. 
  • Many policies can be placed in one premium finance contract that make it easy to pay for all insurance coverage once. 
  • Financing is an open process to the insured thus no money can be lost in the process. 

The risks involved 

The risks associated with insurance premium finance are: 

Qualification risk 

The customer must qualify to have their loan renewed each time. In the event that the security falls below a certain point, the customer will have to provide more collateral to secure the loan. Also, the loan can be offered at a higher rate than what was previously offered. Whatever it may be, there can be risks due to the policies or change of these policies by the bank. 

Interest rate risk 

Depending on the economy, the interest rates of the bank may rise or fall. In the event that the interest rates rise, this will be a disadvantage for it will take away the benefits that a customer intended to have in the first place. 

Policy earning risk 

In the event that the policy of the insured is willingly terminated before maturity due to the loan, the customer will incur the cost of providing more security to pay off the loan debt. 


There are many businesses that would like to explore this scheme and have their families secured and also want good retirement benefits. Therefore, using insurance premium financing can be effective in achieving their goals but before taking this route it is important to consider the factors involved.  

Categories: Insurance