Insurance premium finance can be described as finance that is borrowed to finance premium insurance upfront. This entirely depends on the agreement between the parties involved, that is the lender and the borrower.
What is needed in premium financing?
To qualify for insurance premium financing one must have a need fie life insurance protection and also wish to pass assets to beneficiaries.
It is important also to have illiquid or appreciating assets. This wholly depends with different companies and their terms of services.
Lending a loan that will facilitate payment for all insurance premiums one has to be a member of a registered government department with an objective of promoting enterprise and assess to financial services but this depends with some financial institutions.
Advantages that comes with insurance premium financing
Insurance premium financing comes with a lot of benefits that include improved cash flow and additional source of borrowing that is always in the dire time of need.
One is also able to attain large amount of life insurance without liquidating investments or assets to pay for, and by so doing an effective business tool is achieved.
Risks involved in insurance premium financing
As it is with other lenders, in insurance premium financing, the financier controls interests and the debtor is expected to repay the given loan in ordered installments till the debt is fully settled, thus below risks should be looked upon keenly.
- When the insurance policy is of high amount the installment on it are also very costly.
Rates of interest and policy earning risk are also areas that should be keenly observed due to the risks involved.
- We also have the collateral risk, whereby in case the cost of the client’s insurance drops lower than the level to content the loan, the client may have to provide additional collateral, or the whole loan may be cancelled.
It is very important to have a well laid out plan on the loan repayment, to avoid any inconvenience in terms of assets being confiscated. Repaying on the given timeframe is the most crucial thing that keeps the customer in very good terms with the financial institution.
Before rushing to finance your premium insurance, it is highly recommended that one understands and is fully aware of how insurance premium financing work.
It is also advisable to do some research and understand the terms of whichever financial institution that one is getting into a consensus with to finance their insurance premium.