Paying your commercial insurance premium can be tough.

By November 5, 2020 November 19th, 2020 No Comments

Paying your commercial insurance premium can be tough. It doesn’t matter if you are a small business owner or a Fortune 500 company, paying that premium up front can be difficult. Insurance is a must for businesses; you can’t risk not having it. In fact, in the United States it is a requirement to carry insurance. So there are basically two options for paying for your insurance policy, you can pay the cost up front and out of pocket, or you can finance your policy with a premium finance company. You have to determine which way works best for your business. 

Sometimes it can be hard to understand why your business needs insurance. With all the expenses that occur with running a business, you may look at which expenses you need to keep and which ones you can cut out. It can be hard to make that insurance premium payment when you haven’t had anything bad happen to you or your business. But the truth is, coverage is necessary. Your business needs to be protected. Not having insurance would actually end up costing your business more money than just buying the policy. 

First you need to decide what type of coverage your business needs. You need to determine what needs your business has and find out what types of policies will cover those needs. There are 2 ways to go about this. You can do your own research. You can find all the information you can on commercial insurance. There are blog posts, insurance websites and much more that will have information for you. Once you determine what type of policy will protect your business, you can then start looking into companies that offer you the coverage that you need. This process will be long and time consuming, but it is an option. The second option is to work with an Insurance Agent. There are 2 types of Agents, Captive Agents and Independent Agents. Captive Agents work for one company alone and will be very knowledgeable about the policies they offer but their prices will be firm. Independent Agents on the other hand work with many different insurance companies. Independent Agencies can usually get you a better deal because they make the insurance companies compete for your business. This will usually give you discounts and lower premiums and makes bundling much more affordable. The Independent Agent will do all the work that you don’t want to do. They will compare rates, negotiate with the insurance agencies and keep your insurance policies updated. Having someone look out for your policy and let you know if and when changes need to be made is very helpful. If your business grows, you will need to make sure you have adequate coverage that will cover your growth. 

Now you have the option to fund your insurance policy. Premium Finance companies offer financing for businesses that want to finance their commercial insurance policies. The Insurance Company needs all of their money up front. They don’t want to offer payment plans for commercial insurance. They are a business and they are looking to collect their funds and protect their investments. They want to minimize the damage on their end should something happen. This is why financing is such a great option for commercial policies. They are a third party person to the arrangement that will help all parties be happy. The business will sign an agreement with the finance company. The finance company is told what the policy premium is and determines from there what the interest rate and payments will be. They will then disperse the money to the insurance company for the entire premium amount. Now the insurance company is happy because the policy is paid in full. The business is left with a contract that states they will make monthly payments to the finance company until the loan is paid in full. There are fees and interest associated with the loan, but this allows the business to hold onto their cash flow and still have the coverage they need. 

Teaming up with a finance company is a great way to make all parties satisfied. The Insurer gets their money, the business owner retains their cash flow and the finance company will make a profit on the loan. The finance company will have the business put a down payment on the loan of 25 percent to help cover risk associated with the loan. But even with the 25 percent down, there are still numerous benefits with financing the policy. You are avoiding up the huge lump sum payment to the Insurance Company. This allows you to operate your business and gives you more room for growth. Financing deals can be flexible, meaning you can lump different policies together to have only one payment. 

As with every choice, there is a downside to financing your policy. Obviously there will be interest on the loan. And interest rates can be high. Finance Companies don’t work with banks or credit unions. They can choose their own interest rates. Rates are usually somewhere between 10 and 20 percent. But can be as high as 30 percent. But remember, the loan term is usually only 9 months. So while the interest rate may seem high, it is important to look at the total interest paid. Also, finance companies do have the ability to call their loan due at any time. Now this normally doesn’t happen, but it is written into the contract. There would have to be circumstances surrounding this, they usually won’t call a loan to term that has been making their payments on time and is in good standing. 

So should you try out premium financing? This is sometime you will need to sit down and discuss with your accountant. Look over your numbers and see what makes more sense for your business. 9 times out of 10 it makes more sense to finance it. Businesses need cash flow to grow and expand. Businesses don’t want to tie up all their money in insurance payments and not be able to cover their daily expenses. Financing should be considered when it makes financing sense. 

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