Insurance Premium Funding
What is insurance premium funding?
The Insurance Premium Funding option allows you to pay for virtually any type of insurance policy monthly, regardless of the policy’s carrier. In essence, the insurance premium funding company pays your full premium on your behalf, and you are then obligated to repay the company with monthly payments throughout the year.
Benefits of Insurance Premium Funding
- Spread your insurance costs over a longer period.
- One monthly payment for multiple insurance policies
- Smooth out your monthly business cash flow
- Obtain a tax deduction on interest paid for business policies
How Are Monthly Payments Calculated?
Even though the specific method can differ from company to company, the basic method is typically consistent.
For premium funding contracts, interest is typically calculated as ‘simple interest,’ so it does not compound over time. This simplifies the repayment calculation.
In the example below, we show how a typical repayment is calculated.
ANNUAL INSURANCE PREMIUM ($10,000)
Funding Contract Term (12 Months)
Funding Contract Setup Fee ($300)
Funding Contract Interest Rate (15%)
Total Interest Charge ($10,000 x 15%) ($1,500)
Total Amount Payable (Premium + Fee + Interest) ($11,800)
Monthly Payment (Total Amount Payable / 12 Months) ($983)
In many cases, small businesses prefer to pay $983 each month over $10,000 upfront.
Plus, if you purchase a business-related policy, the interest on the premium funding contract will be deductible.