Premium Financing

The insurance Act requires that insurance premium for all classes of insurance should be paid before cover commences. The Act provides that no insurer shall be deemed to be on cover or assume a risk in respect of insurance business unless and until the premium payable is received by the insurance company in full. This requirement applies to all renewals as well as new business. In view of the foregoing, it is important to have in place a premium payment plan and/or make necessary premium financing arrangement promptly.

Paying for your insurance premiums can be quite a big hassle. This is because you will be required to pay a lump sum amount, hence the importance of Insurance Premium Financing arrangement.

What is Insurance Premium Financing?

Insurance Premium Finance arrangement is a specialized finance facility that allows you to spread an insurance premium payment over the term of the insurance policy rather than paying the full premium upfront. The insurance premium finance company (bank) pays the insurance premium to the insurer on your behalf then you repay the bank in installments. The unearned premium of the insurance policy being financed serves as security for the loan and generally, no other forms of collateral are required.

Benefits of Insurance Premium Financing

Insurance Premium Financing has the following benefits:-

  • It helps in preserving working capital, improving the cash flow and maintaining liquidity. This is because you will not pay premium in lump sum but will spread it over a period of time.
  • No collateral is required
  • Enables you enjoy insurance coverage without having to pay the full premium upfront
  • Enables you to pay insurance premium in compliance with the Insurance Act
  • It is an additional source of borrowing, typically with no impact on the availability of existing credit facilities
  • It has a more liberal payment terms
  • The availability of flexible payment plans corresponding to seasonal business cash-flow needs.
  • It is a potential tax-deductible interest expense (clients should always consult their tax advisors regarding tax issues)

Process of securing Insurance Premium Financing

The following is the process of securing Insurance Premium Financing

  • Decide which bank/finance company to arrange premium financing with.
  • Decide the number of installments –This will depend on the total amount of premium and your cash flow plan.
  • Complete an Insurance Premium Financing form and return it to the bank /finance company with a current cheque for the first installment and post-dated cheques for the remaining installments. You can also sign a standing order form instead of the cheques.

Role of Chancery Wright Insurance Brokers Limited in Insurance Premium Financing

Chancery Wright negotiates a substantial volume of premium finance transactions, which helps position us to arrange premium finance on behalf of our clients at competitive interest rate. We usually arrange premium financing to our clients as part of value addition, that is, we do not charge for the service. The following is our role:-

  • We compute the annual insurance premium payable.
  • We obtain interest rate quotations from various banks for various installments.
  • We analyze the interest rate quoted
  • We negotiate with your preferred bank for a competitive interest rate for the preferred number of installments.
  • We obtain Insurance Premium Financing form and assist you in completing the form. We also ensure that the insurers have completed their part.
  • We return the forms plus the cheques/standing order form to the bank
  • We follow up with the bank and the insurer to ensure that the premium is paid promptly to avoid disputes at the time of an insurance claim.

Insurance Premium financing arrangement is very important. It enables an organization and/or an individual take advantage of competitive interest rates, particularly in situations where the rate of return on the cash retained in the business exceed the borrowing interest rate.

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