Having business insurance is essential to manage a company’s risks and protect against losses that can occur due to normal business operations.
In a traditional business-insurance company relationship, the insurance company covers some or all covered losses up to the limits of the policy in exchange for a monthly premium paid to the insurance company by the business.
Although having the right insurance for a business is critical, not all organizations have the cash flow needed to pay for ongoing insurance costs. When this happens, a business may seek insurance financing options, such as insurance premium financing.
What Is Insurance Premium Financing?
When an insurance policy is purchased, the business is responsible for paying a premium to the insurance company. The premium differs from other insurance costs, such as the deductible, which is the portion a policyholder pays out of pocket when filing a claim. Insurance premiums are paid regardless if a claim is ever filed.
Insurance premium financing involves acquiring a third-party loan to purchase the insurance policy’s premiums. This strategy is most commonly used by businesses and high net worth individuals who do not want to liquidate their assets to pay for costly insurance premiums outright.
With insurance premium financing, businesses can obtain the coverage they need without the extreme upfront costs associated with insurance.
To be clear, insurance premium financing is not free insurance. The business will still be required to pay interest to the lender and may have to post collateral that is equal to the difference between the loan balance and the cash surrender value of the policy.
Insurance premium financing can be a useful tool, allowing businesses to reduce the initial out-of-pocket cost of purchasing an insurance policy.
Insurance premium financing can be an attractive opportunity to any business that requires a substantial amount of insurance, does not want to use its existing capital to pay insurance premiums, is insurable at standard rates or better and is able to satisfy the insurance carrier’s underwriting regulations.
Although insurance premium financing can be an excellent option for many businesses, it is important to understand the risks involved.
Interest rates are not generally fixed, meaning they could rise in the future. A variable interest rate can quickly deplete the savings of a business and cost the organization more money in the long run.
Ways A Business Can Finance Insurance
Every business needs insurance to protect its assets from unexpected losses; however, business insurance policies can be very expensive. Fortunately, there are ways for a business to keep insurance costs manageable.
1. Shop Around For Insurance
Many businesses make the mistake of purchasing a policy from the first insurance company they find. The fact is that business insurance policies can greatly range in price and terms.
Online research may provide a general estimate of how much a business should pay for a particular policy based on factors such as business size and level of coverage.
Consulting with a benefits business consultant will provide more information about specific insurance pricing and tailoring policies based on individual business needs.
2. Opt For Packaged Policies
One of the best ways to save money on business insurance is to purchase a package that includes several types of insurance instead of individual policies.
Many insurance providers will also package insurance at a discounted rate as a way to get more businesses to sign up for their products. While a policy package can save businesses a great deal of money, it is important to only choose a package with policies that the business actually needs.
3. Pay Premiums In Advance
Business insurance can be a substantial expense, even for small businesses. For this reason, many businesses choose to pay their premiums in monthly or quarterly installments.
However, insurers prefer, and sometimes require, businesses to pay the entirety of the policy when it is issued. Ask if the insurer offers a discount for policyholders that pay the entire premium amount upfront as this can save businesses money on insurance costs.
4. Eliminate Unnecessary Coverage
The needs of businesses change over time, including their insurance needs. Some businesses may anticipate that they will need a certain type of policy and may not use it year after year.
In some cases, a business may find that their coverage is actually overlapping, resulting in wasted money. Carefully examine what policies the business has, and which may be eliminated. Getting rid of some insurance policies can save businesses a great deal of money each year.
5. Classify Workers Properly
Classifying workers incorrectly can lead to higher insurance costs. Depending on the type of business, some workers may be deemed as employees while others are freelance contractors.
Although a business may be required to offer insurance to an employee, the organization may not be required to provide insurance to the contractor.
6. Train Employees To Perform Their Jobs
Proper training of employees can make a dramatic difference in their ability to perform their job with little risk of injury or illness.
Insurance rates are based on many different factors, including the number of claims that a business makes each year. When employees experience fewer injuries and illnesses, there are fewer claims made which can lead to a reduction in insurance costs.
7. Participate In Trade Or Professional Organizations
Many trade and professional organizations in the U.S. provide insurance coverage to members through an affiliation with an insurance company.
Often, this type of coverage is more affordable than acquiring an insurance policy directly through the insurer.
Even if an organization does not offer insurance directly, it may provide tips or guidance on how to get the best deals and discounts.
Speak with a Business Benefits Consultant
There are many ways that businesses can reduce insurance costs and even avoid the major upfront cost associated with business insurance policies, such as with insurance premium financing.
To learn more about insurance premium financing or other ways for a business to finance insurance costs, reach out to an experienced business benefits consultant at Business Benefits Group.