Premium financing provides loaned assistance for insurance premium payments. This allows companies to better manage their employee’s benefits. These loans usually have cover life insurance, however it can also be used to offset the premium costs for large group insurance plans. Typically offered by a third-party company, these loans generally go towards premiums that exceed $5 million dollars, making them perfect for a medium sized business. Additionally, some insurance companies may offer premium financing as well. We work with our clients to find the right financer, and right plan for their company.
Types of Premium financing
There are several types of premium financing. The most common is Recourse Premium Finance where the client receives a fully collateralized loan arrangement with the intention of holding the life insurance policy to maturity. These are generally purchased for liquidity needs and offer the most advantageous loan rates, fees, and spreads. Because of this Recourse Premium financing is preferable for clients whose portfolio is made of large, but illiquid net worth, such as real estate.
Clients may also receive Non-Recourse Premium Finance, where the investments may be held by the insured’s investment team as long as the collateral money is pledged annually with third party verification of the funds. This means that the companies payment into the loan is the annual payment, so long as the loan company receives proof that they have the funds. This makes Non-Recourse Premium Financing preferable for those clients whose portfolio is made up of liquid assets, like money or stocks.
We can also assist in setting up a premium finance platform to aid in the case design of the plan, mitigating much of the inherent risk that comes may come with them.
Benefits
There are several benefits to Premium Financing including the elimination of large up-front payments, and the ability to include multiple insurance policies on a single premium finance contract. This allows for a single payment plan to cover all insurance coverage and it allows for clients to obtain coverage without liquidating other assets.
Additionally, Premium financing is often transparent to the company insured. We transmit the completed premium finance agreement to the premium finance company, and the policy holder is billed as they would be for a regular insurance policy. This establishes a simple to use system, no different than a traditional insurance plan.
Using a premium insurance plan can also lower the cost of the annual payments. If the loan to obtain insurance has a lower annual interest than the original plans annual payment did it can be a significant yearly savings, that can then be invested back into the company. This ensures that employers can offer modern and desirable benefits, that help them attract the best potential employees, while not losing out on other equity streams.
