In the competitive and challenging market conditions faced by insurance professionals, it is critical that you service your customer to the highest levels possible. Premium financing can offer a solution to clients’ cash flow problems resulting from unexpected premium increases. By offering premium financing as a part of your presentation to your client, you can add more value to the service you provide. Most premium finance companies can assist you in identifying benefits of insurance financing based on your client’s individual needs. Here are a few of the benefits of insurance premium financing.
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– The key benefit of premium financing to the insured is that the monthly premium installment can be part of their budgeting process. Rather than having to allow for large payments of premium at certain times during the year, the payment to the premium finance company can be scheduled along with other monthly expenditures such as rent, utilities and payroll. This helps to smooth cash flow and expense allocation for the insured.
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– Business loans require an asset to be mortgaged as collateral, and many companies are limited in their borrowing ability by the amount of unpledged assets. Premium financing allows the insured to use the asset of the insurance policy to secure the loan. This leaves other assets on the balance sheet untouched and free for use by the insured as they see fit. In addition, because premium finance agreements are less then one year in length, they are considered “off balance sheet loans.” This means premium finance debt can be excluded from an insured’s balance sheet to minimize long-term liabilities. “Off balance sheet” loans are especially useful to publically traded entities because it helps reduce the companies debt ratios.
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– By using premium financing the insured does not have to use other sources of capital, such as a line of credit. Existing cash and near cash assets do not have to be liquidated to pay insurance premiums.
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– The normal practice of premium financing is that the repayment dates are at 30-day intervals after the effective date of the financed policy. Most premium finance companies can adjust this date to suit the insured’s specific cash flow. Premium finance companies offer varied payment plans, subject to credit approval; from three monthly installments to twelve equal payments, including down payment. Seasonal, quarterly and multi-year repayment plans can also be arranged.
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– An often overlooked advantage of premium financing is that of the after-tax benefit to the insured. This is sometimes called a “cash flow analysis”, but is different from the typical cash flow analyses prepared by accountants. Using the insured’s internal rate of return on investments and their tax rate, the tax savings that accrue by using premium finance can be calculated. In typical circumstances, the after-tax benefits offsets the real cost of the financing to the insured.
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– Premium financing is highly competitive. It offers a fixed-cost additional line of credit, without up-front arrangement or facility fees or other charges.
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On top of these benefits to the insured, receivables are no longer your problem. GPF takes the burden of tracking and managing premium payment off of your shoulders. The process of billing and collecting is typically part of the premium financing process. This allows you to focus on providing your clients the best in insurance coverage and costs.