Category: Insurance

Insurance Premium Financing- The Benefits And Risks

Insurance has evolved over years to include almost every aspect of life. We are now surrounded by insurance companies offering different policies and some will knock at your door to show you what they offer. We now have insurance policies for things that we did not imagine to be insured before.  

Do you know that it is possible to insure your planned wedding? People who worry that their costly wedding may face an unpredictable bad ending such as the bride/groom getting injured or the wedding being cancelled at the last minute may apply to get the insurance that will cover their costs. Another such uncommon insurance cover is the insurance of a body part. Someone who relies on a certain part of their body to earn a living may apply to have that part insured. Well, there are other policies in this “uncommon” category but that is a story for another day.  

Today we shift gears to Insurance Premium Financing. Suppose you want to buy an Insurance Policy to cover any aspect of your life or other’s either the common life insurance policy or one of the uncommon such as talent insurance and you have a problem paying the premiums as a whole upfront, then the option will be Insurance Premium Financing. In this way the person seeking to be insured gets in contract with their bank, the bank pays the premium in whole and the insured pays the bank in instalments. By this method, the insured has a chance to have an otherwise expensive Policy in considerably cheaper instalments. 

The Benefits 

Insurance can be extremely expensive for many people, in that case only Insurance Premium Financing makes sense to those who wish to enjoy their life worry-free. 

It can save your assets. You will not worry about liquidating your assets to pay for insurance. 

In some countries, capital gains taxes shall be triggered on sold assets. Therefore without liquidating your assets to pay upfront, you will prevent being taxed. 

The Risks 

Like anything you purchase, insurance comes at a risk. Long-term insurance policies such as life insurance for 20 years may encounter Interest Rate Risk. Interest rates are variable and may be low at the time of insurance premium financing application but if they go up in the future then it may defeat the purpose of the insurance. 

Qualification Risk 

Your lending partner may require you to re-qualify every time the loan is renewed. For this purpose, your collateral must be evaluated too. If your collateral does not meet the required minimums, then you run the risk of having to provide more collateral to your loan. Additional collateral may also be required should the cash surrender value start under-performing. 

Bottom line 

insurance premium financing solutions is a great strategy for some individuals. A competent financial advisor may help mitigate the risks associated.