This article will give a brief history on insurance payment plans and it will identify the need for premium finance companies in modern times.

In the earlier part of the century, when the insurance industry was first gaining traction, insurance companies required payment for the full term (1 year or 6 months).  With the invention of the automobile, insurance became more of a need and legal requirement to drive.  Also, with the easier to obtain financing for real estate purchases (houses), insurance became a requirement for financing.  As the ordinary folk found a need for insurance, the insurance industry was not ready to offer payment plans.  This opened up an opportunity for premium finance companies to enter the market place.

With time, auto and home insurance companies started offering their own financing and payment plans.  Currently, the few companies who don’t offer payment plans are Excess and Surplus Lines insurance companies.  These insurance companies (E&S) are still bound to the old school way of conducting insurance business and require payment for a full term.  The alternative is to accept a premium finance agreement.

So it is perfectly normal for your commercial insurance policy to be financed by a third party premium finance company.  Interested rates may vary, but they are usually very high (over 20%).  I recommend my customer to pay for the policy in full if at all possible.

At the time of signing the premium finance agreement, you are also signing a power of attorney for your premium finance company to cancel your insurance policy in case you don’t pay your note.  If your insurance policy is ever cancelled, it can become a convoluted process to get the policy reinstated because your premium finance company has to accept, then the insurance company has to accept too and the process can take a few days to get reinstated.

At times your insurance agent may add a few percentage points interest to the already high interest rate.  This is legal, but usually not the best practice.  Also, because it is a time consuming process to prepare a finance agreement, your insurance broker/agent may add a fee.  This is also legal as long as the fee is a reasonable amount, it is consistent with what he charges other customers, and the client has to know he/she is paying a fee.

In summary, premium finance companies had a larger role in the earlier part of the century and they are still needed in the commercial insurance lines of business.  They are becoming obsolete and it is recommended the policy is paid in full over accepting a premium finance agreement because of the possible increased cost.

Please contact our agency Bound Insurance, if you have any questions or concerns.   We can be reached at 512-454-7799 or by email at

This article was written by Jesus R. Olivares, agent at Bound Insurance.