Venhouse

The purpose of premium financing

Premium Financing involves the lending of funds to a person or company to cover the cost of an insurance premium. Premium finance loans are often provided by third party finance entity known as private bank; however insurance companies and brokerages occasionally provide premium financing services.

To finance a premium, the individual or company requesting insurance must sign a premium finance agreement with the private bank. The loan arrangement may last from one year to the life of the policy. The premium finance company then pays the insurance premium and bills the individual or company, usually in monthly installments, for the cost of the loan.

The benefits of premium financing

Clients can obtain large insurance coverage without substantially liquidating their assets to pay the single premium
Preserve clients’ own capital for alternative uses.
Maximize the value of clients’ premium dollar allocation. Clients’ life protection is leveraged due to low initial outlay.
The rate of return of the insurance policy is geared up; clients use less capital to achieve higher return.
Clients enjoy positive interest rate arbitrage when the insurance policy crediting rate is greater than the loan interest cost.

The operation of premium financing