Monthly payments for business insurance
Like most insurance brokers in Australia we use a method known as premium funding to give our clients the convenience of monthly payments.
When you choose to pay your insurance monthly, we will establish a premium funding facility on your behalf.
The premium funding company pays the full annual premium to the insurance company, and you then repay the amount over ten or twelve monthly payments via direct debit.
We use two different premium funding companies for our clients choosing to pay monthly:
For clients with Arteva Funding, the name ‘Principal Finance’ may show on your bank statement.
Why do we use premium funding?
Many insurance companies do not offer monthly instalments on their business insurance policies, which would normally force businesses to pay annually.
Instead of forcing you to pay annually, premium funding allows you to spread your insurance premiums over any period up to twelve months.
It also allows you to combine multiple policies across multiple insurers into a single monthly payment. For example you might have your public liability with Insurer A, your tools with Insurer B and your ute with Insurer C. Instead of having separate payments for each, they can be combined into one.
How does it work?
Premium funding is a way of financing your insurance premium, and like most forms of financing it attracts interest.
Here’s how it works:
- You accept an insurance quote of $2,000 and choose to pay monthly.
- As your broker, we arrange for the premium funding company to pay $2,000 to the insurance company, meaning you are insured for the 12 months.
- You now owe the premium funding company $2,000, which you repay over ten monthly instalments, along with interest.
- As you approach the renewal date of your policy, we will renew your policy and your premium funding contract. This means your monthly payments will continue, ensuring there is no gap in your cover.
- If you do not wish to renew, or if you’d prefer to pay annually this time, simply let us know. We’ll send you plenty of notifications in the month leading up to renewal, giving you the opportunity to change your payment preference.
Premium funding is not the same as a monthly insurance policy
Over the last ten years we’ve had thousands of clients pay for their insurance via premium funding, including some of our largest clients who have revenue in the multi-millions.
However, we also get clients (typically the smaller ones) who don’t properly understand premium funding before agreeing to it, which can result in complaints.
The main issue is that clients think paying monthly via premium funding is the same as taking a “pay by the month” policy from a direct insurance company like AAMI or NRMA etc.
Although the end result is similar – paying for your insurance monthly – the way they work are very different.
With the direct insurers, you are simply paying for your insurance monthly, and typically you can cancel at any time without any financial consequences.
Premium funding is completely different, as it involves a third party (the premium funding company) paying the full 12 month policy for you, and you then repaying the premium funding company though monthly instalments.
When you cancel your policy, your monthly payments don’t simply stop. That brings us to the next section…
Can I cancel my monthly contract?
You can. Although the insurance policy is a 12 month contract, and the premium funding agreement is typically a ten or twelve month contract, you are able to cancel both.
But it’s not as simple as cancelling a monthly policy through a direct insurance company, and there will be financial consequences for cancelling early. It is for this reason that we recommend clients do not use premium funding if they expect to hold their policy for less than 12 months.
Here’s how an early cancellation will typically work.
- You inform us you wish to cancel your $2,000 policy half way through.
- We instruct the insurance company to cancel your policy. They will return the unused premium, but it’s not always a perfectly prorated amount. i.e. cancelling a $2,000 policy halfway through won’t result in a $1,000 return. It will differ between insurers, but in this case let’s say it was $800 returned.
- From that $800 we’ll retain any commission or broker fees that were included in the original amount. Let say it was $300 in this case.
- That leaves $500 to be returned to the premium funding company.
- The premium funding company will reduce your loan amount by the $500, and will notify you of how much is still outstanding. If the loan amount was $2,000 plus interest, and you’re about half way through repaying it, you could assume there is around $1,000 left to repay. Reducing that amount by $500 is still going to leave an outstanding amount to be repaid.
- You can pay this as a lump sum, or they can continue debiting monthly until the loan has been repaid.
Typically you’ll find that cancelling early in the policy period (within the first six months) will result in a larger payout figure, whilst cancelling later in the policy period (within the final three months) will result in a very small or even zero payout.
We understand that it’s not the most simple concept, but that’s what our team is here for. If there’s anything at all you don’t understand about premium funding – and especially the cancellation process – please ask us. If you’re still unsure, then we strongly recommend that you don’t choose this payment method.
What if I stop making payments?
If you cease making your monthly payments at any time, either by choice or due to cashflow issues, the premium funding company has the right to cancel your insurance policy.
Before this happens we will contact you to see if there is any way we can help.
Even if you stop making payments and your insurance is cancelled, you may still be liable for interest fees and charges relating to your premium funding facility. See the above section on cancellations for more information.
Does it cost more to pay monthly?
It is more expensive to pay your premiums monthly, however the monthly premium we have quoted you is the total amount you have to pay.
In addition to the monthly premium we have quoted there will also be a $29 admin fee charged along with your first monthly instalment. This fee will only be charged once per policy period.
The reason for the increased cost is that the premium funding company charges interest on the loan amount. This is because the premium funding company is paying the full premium upfront and allowing you to repay it over a longer period.
More information
If you would like more information about premium funding and why we use it here at Trade Risk, please contact your insurance broker directly or call our office on 1800 808 800.
