COVID-19 has hit many businesses extremely hard. Many people are feeling the effects of the shut down and individuals and businesses alike are trying to recover. There are many hurdles that are making it more and more difficult in the insurance marketplace. The market has been hardening which has brought about rising insurance premiums, a reduced capacity and making for more challenging of underwriting conditions. When the market is going through these changes it can be difficult for insurance agents to handle the changes for their insureds. Many are turning to premium financing for solutions to help their clients. The impact of COVID-19 on small businesses has been very profound. Premium financing is something that has been very necessary for these small businesses to use in order to survive. It will allow these businesses to recover from losses that may have occurred from shut downs and slower business.
As businesses are starting to open up and returning to full capacity, they will realize that they will not have the cash flow that they once had. Businesses that were once able to pay their premiums in full will now be looking for other options to help them maintain the coverage that is required. Many businesses went through financial hardships this past year. Because of this, premium financing will increase over the course of the next couple years. It will become more viable options for people who may not have considered it before. Agents and brokers need to be aware that this type of financing for their clients is going to be more relevant in this day and age and need to prepare their agencies for it.
The convenience factor for the insured is the main benefit for financing their insurance premium. Agents can get their clients on a structured payment plan where they can make payments over a specific period of time. This is especially appealing because it allows your business to have access to working capital which will help your business stay afloat. It preserves cash and leaves credit lines available for other needs that may arise for their business.
Businesses of all shapes and sizes have been using premium financing for decades. It is arranged for a business by an insurance agent or broker. It will require a down payment of typically 25 percent. It could be higher or lower depending on policies and risk associated with it. The premium finance company will pay the premium for the insured in full up front. This lump sum will serve as the collateral if the insured is not able to make their payments back to the finance company.
There are a few important factors to remember regarding premium finance. First, the payment options can depend on different variables; the amount financed, the minimum earned amount, and the client’s payment history if that can come into play. The rates will vary depending on what the Federal Reserve is currently offering. If the insured is not able to make the payments on their loan, their insurance policy will be cancelled. And when it is cancelled, the insured will still be responsible for any payment if the finance company is still owed money after a return is distributed.
Premium finance is a relatively simple concept. They loan out funds to pay for insurance business premiums and in return create a loan in which they require the insured to make monthly payments towards. As long as the balance is paid back in full, along with any fees that may have been accrued, everything goes smoothly. It only gets complicated when payments are late or not made at all. Even though credit reports are not pulled for financing this type of policy, it is important to remember that if loans are not paid in full, there will be repercussions for non-payment. People need to understand that by signing a Premium Finance Agreement that they are agreeing to pay back the loan amount. It will just become a mess for the insured and the Finance Company if issues arise and payment is not being fulfilled.
Premium financing is not a fit for every business. But if your business is one that has been impacted by COVID-19, it will most likely be a viable option. It allows you to retain your capital so you can invest in other areas of your business. Unfortunately businesses need capital to operate and expand. Sometimes it has to be determined where you will put your excess capital. But paying your insurance premiums shouldn’t be a stress factor. Take advantage of premium financing and allow others to tie up their money so that you are free to use yours.