Short answer
Insurance premium financing lets you spread a policy payment over several months. You can also pay in full or use the carrier’s own installment plan, and each option costs something different. Premium financing usually adds a finance charge on top of the premium. Read the total amount due, not just the monthly payment. Terms depend on the carrier, the finance company and your state.
Three ways to pay: insurance premium financing and other options
- Pay in full: This adds no extra cost.
- Carrier direct bill installments: Many admitted carriers offer these, usually with a small fee per installment.
- Third-party premium finance: A finance company pays the carrier, and you repay the finance company with interest. Most people mean this option when they talk about insurance premium financing.
How a typical insurance premium financing agreement works
Most agreements start with a down payment, often around 20%. About 9 or 10 monthly installments usually follow.
The down payment and the first installment can land close together. That makes the first month look bigger than you expected.
The total includes taxes, fees and finance charges. This is why owners often ask why their installments add up to more than the premium. Read the total in the agreement, not just the monthly number.
Many owners also ask whether they can do more installments. Sometimes they can, but the options depend on the carrier and the finance company. Ask for the available schedules when you request the quote.
What insurance premium financing costs
Finance charges vary by finance company, carrier and state, so check the rate in your agreement.
That is real money, so compare it against your other choices. If you can pay in full, you avoid the finance charge. A card with a 0% promotional plan may also cost less.
Paying by card through our payment portal may add a processing fee. Compare that fee to the finance charge before you decide.
Why your invoice may show two or three years
Multi-year policies can show the full term premium on the invoice. The top-line total may look much higher than a single year of coverage. Our article on why a multi-year professional liability policy means no new policy this year explains how those terms work.
Check the installment schedule instead of the top-line total. The schedule shows what you actually owe and when.
What happens if you miss a payment
If you miss an installment, the finance company can request that the carrier cancel your policy. A cancelled policy can leave you without coverage and in breach of client contracts. You can read more about insurance cancellation for nonpayment and how the process works.
Contact the finance company as soon as you see a missed payment. If you receive a notice of cancellation, your insurance agent can help you understand it and your options.
Surplus lines policies and insurance premium financing
Policies from surplus lines carriers often must be paid up front. That is one reason firms turn to insurance premium financing.
Admitted carriers more often offer direct installment plans. Which type of carrier fits your firm depends on your operations and underwriting.
What we see at Hardcover
A client looking at a two-year policy saw 18 installments and a total that didn’t match their premium. The schedule covered both years of the auto-renewing term. Walking through the down payment and the remaining installments cleared it up.
Another firm learned it was paying a high finance rate through a prior agent because its carrier required payment up front. Moving to a carrier with a direct installment plan changed the math.
Related questions
Can I pay my business insurance monthly?
Usually yes, through a carrier installment plan or a premium finance agreement.
How much is the down payment on insurance premium financing?
Often around 20% of the total, though it varies by agreement.
Why don’t my installments add up to the premium?
The agreement can include taxes, fees and finance charges. A multi-year schedule can also cover more than one policy year.
What interest rate should I expect on a premium finance agreement?
Rates vary by finance company and state. Check your agreement for the exact rate and total finance charge.
What happens if I miss a financed payment?
The finance company can request that the carrier cancel the policy for nonpayment.