Premium Finance - BIBA (2024)

FAQs

What is premium finance life insurance? ›

Life insurance premium financing involves taking out a third-party loan to pay for a policy's premiums. As with other loans, the lender charges interest, and the borrower (in this case, the insured) repays the loan in regular installments until the debt is satisfied or the insured passes away.

Premium finance is a convenient and affordable way to pay for your insurance. Rather than having to find a large sum up front to cover the premium, you can instead spread the cost by paying in smaller regular instalments.

Life Insurance Premium Financing risks to consider:

There are risks inherent in any borrowing strategy. These include interest rate fluctuation, market volatility and the possibility of collateral shortfall, which may lead to a margin call.

The British Insurance Brokers' Association (BIBA) is the UK's leading general insurance intermediary organisation representing the interests of insurance brokers, intermediaries and their customers.

Premium financing is a double-edged sword. The leverage it offers can boost the policy holder's potential return but also magnifies any potential losses. The higher the loan amount is to the total premium required, the more significant the leverage would be.

To determine the average prices, we secret-shopped to obtain quotes for various policy types, coverage amounts and policyholder ages. Based on our research, the monthly cost of life insurance is $22 for a 30-year-old, $32 for a 40-year-old and $80 for a 50-year-old.

Credit life insurance usually covers any remaining debt a borrower has on a large loan. In a typical policy, the borrower will pay a premium — often rolled into their monthly loan payment — that allows the lender to be paid in full if the borrower dies before paying off the loan.

Note: Premium Financing is a credit facility and involves borrowing, which incurs interest payments with a variable rate. It may come with the risk of losing your rights under the insurance policy and other risks.

The amount you pay for your health insurance every month. In addition to your premium, you usually have to pay other costs for your health care, including a deductible, copayments, and coinsurance. If you have a Marketplace health plan, you may be able to lower your costs with a premium tax credit.

Allows you to take advantage of falling rates and pay less interest. Early repayment saving money on interest charges. Switching premium finance lenders should also be easier if you have a variable rate loan.

What are the benefits of premium finance? ›

The bottom line is that premium finance can provide an efficient, convenient alternative route to funds. This is particularly useful if your business pays higher insurance premiums, or you're seeking to manage cash flow, or free up funds for investment.

Today, the Federal Funds rate has risen from nearly 0% at the beginning of 2022 to over 4%. Lending interest rates for premium financing have shot up from around 2% to over 6% while policy dividend and crediting rates have barely budged.

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A “premium finance agreement” is defined as “an agreement by which an insured or prospective insured promises to pay to a premium finance company the amount advanced or to be advanced under the agreement to an insurer or to an insurance agent or producing agent in payment of premiums of an insurance contract, together ...

Premium financing is available for some types of permanent life insurance - especially indexed universal life (IUL). Premium financing appeals to those wanting to keep their capital at work to the greatest extent possible within their businesses or other investments.

"At a premium" is a phrase attached to situations where a current value or transactional value of an asset is trading above its fundamental or intrinsic value. For example, "Company X is trading at a premium to company Y." Or, "A commercial building was sold at a premium to its underlying value."

Premium can mean a number of things in finance—including the cost to buy an insurance policy or an option. Premium is also the price of a bond or other security above its issuance price or intrinsic value.