By Zilla Efrat 

No doubt you’ve seen your business insurance premiums rising in recent years, but are you aware of premium funding and how it can help you fund these premiums? 

The types of insurance your business may need vary from property, vehicles, workers’ compensation, public liability and product liability to professional indemnity, business interruption, cyber and possibly credit insurance. 

The problem is that many of these premiums are paid annually and they may even land on your desk at the same time of the year, placing strain on your cash flow, especially if it’s cyclical or seasonal. 

Premium funding is a useful tool for managing your different annual insurance premiums and thus your cash flow. But it does have pros and cons so careful consideration is needed to assess if its right for your business. 

A solution to rising insurance costs

Premium funding can be a solution to this problem. Also known as premium financing, it allows you to pay your annual insurance in manageable monthly instalments, rather than as a lump sum, freeing up money in your business for other expenses or to buy inventory.  

It works like this. The funding company pays the full annual premium of your policy on your behalf to the insurer. Then you repay the funding company in monthly payments.  

You can usually also roll all your premiums together into one simple monthly instalment to the premium funder, rather than having to pay multiple payments to different insurers throughout the year. 

The benefits of premium funding for businesses  

By doing this, you could save valuable time and effort which can be devoted to growing your business. You also avoid paying any late fees. 

In addition, the interest rates on premium funding arrangements are often fixed, so you can avoid rate fluctuations. You will also know exactly how much cash you need to come up with each month, an advantage that will make budgeting and cash flow forecasting much easier to do.  

Plus, the interest and fees you pay to the premium funder may be a tax-deductible business cost. And, unlike the big banks, the premium funders will not ask you to put up any collateral, such as property or assets, against their funding. 

The drawbacks of premium funding for businesses

Despite the benefits, premium funding does have some disadvantages. One of these is the annual cost of the interest charged and other fees attached to the loan. This means that your insurance may cost you more than if you had paid for all your annual insurance in one lump sum at the beginning of the year.  

In other words, you need to ensure that the benefits you reap from premium funding outweigh the cost of the interest and fees charged. Also, if you default on your monthly payments over the year, you could lose your cover and its benefits.