Premium financing is the lending of funds to a person or company to cover the cost of an insurance premium. Premium finance loans are often provided by third party finance entity known as a premium financing company, or bank; however insurance companies and brokerages occasionally provide premium financing services through premium finance platforms. Premium financing is mainly devoted to financing life insurance policies.
To finance a premium, the individual or company requesting insurance must sign a premium finance agreement with the premium finance company. The loan arrangement may last from seven years to the life of the policy, governed by the structure on each individual plan. The premium finance company then pays the insurance premium and bills the individual or company, usually in monthly installments, for the unsecured collateral of the loan which is determined annually.
Typically, clients that engage in this transaction are age 29 to 75; with net worth of $5MM or greater. Clients benefit in the current environment due to the advent of premium financed indexed universal life policies.