Premium Finance is the business of providing loans to consumers. Premium Finance, unlike a bank, provides an insured party the ability to cover the cost of general insurance premiums. Insurance premiums for both commercial and personal policies can be financed. The premium financing loan helps the insured alleviate the need for large up front capital costs normally associated with insurance premiums. The premium finance company provides payment in full to the insurance company who issued the policy. The insured pays the premium finance company on a monthly, quarterly, or semi-annual basis – these payments include any fees and/or finance charges associated with the loan. The premium finance company is given “power-of-attorney”. The power-of-attorney affords the finance company the right to cancel the insurance contract in the event of non-payment by the insured. The unearned portion of the insurance premium is also assigned to the finance company in the event of a return premium. This provides the finance company security (collateral) in the loan and helps to ensure repayment in the event of a default. Using the insurance policy as collateral is very similar to a consumer using his or her new vehicle as the collateral for the loan.
Brien Volpe, CPCU