Premium funding is a great way to smooth out your business insurance costs over the course of the year.
It means rather than having to pay the total amount of the premium upfront, the business can pay it off in instalments, plus interest. The cost of the interest will usually be a tax deduction for the business.
Premium funding involves borrowing an amount to cover the cost of the firm’s insurance premiums, in addition to interest payable on top of the amount borrowed. “This type of funding suits businesses with lumpy cash flow,” says John Clark, Steadfast’s broker support manager.
This type of funding can be used to pay for a range of different business insurances, including product liability insurance, theft and business interruption insurance. The funder may wrap up cost of the premiums into a single loan, allowing the borrower to pay for a range of insurance policies in a single payment.
“This type of funding suits businesses with lumpy cash flow”
It may be an appropriate option for businesses that may not have the full amount for the total year’s insurance policy available now but have the ability to pay it off over time.
It may also suit businesses that can generate more profit from using the cash to invest in stock or other parts of their business rather than paying insurance premiums upfront. In this situation, the cost of the premiums is less that the profit that can be earned otherwise.
Premium funding is also an alternative to approaching a bank for funding. Premium funders typically won’t require collateral in the same way a bank may require security, for instance a charge over the business owner’s property.
There are many instances in which it might suit a business to use premium funding. Recently, Steadfast clients have used premium funding across a number of different industry sectors for premiums of different amounts.
In one case, an engineering business funded $45,000 in premiums, in another example an earthmoving contractor funded $9,000 worth of premiums and in another example, a construction manager funded $7,000 worth of premiums.
“The value of premiums to be funded can vary from a few thousands to hundreds of thousands, depending on the client,” says Clark.
Most premium funding companies allow businesses to pay off the borrowed amount over 10 months. But if the business does not repay the borrowed amount plus interest, the lender has the right to cancel the policy. The business will typically have to put forward a deposit equivalent two month’s premiums to secure funding.
If premium funding is something that may suit your business, talk to your Steadfast broker today about funding options that may suit you.
Important note – the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs. Steadfast Group Ltd (ABN 98 073 659 677, AFSL 254928)
Important notice – Steadfast Group Limited ABN 98 073 659 677 and Steadfast Network Brokers
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
Information is current as at the date the article is written as specified within it but is subject to change. Steadfast Group Ltd and Steadfast Network Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Steadfast Group Limited.
CONTACT MORGAN INSURANCE
Address: 80 Kendall St Cowra 2794, NSW Australia
Phone: 02 6342 4861
Freecall: 1300 915 024
Email: jim@morganinsurance.com.au
ABN 22 166 392 516 | AR 452128
Authorised Representative of PSC Connect Pty Ltd
AFSL 344648 | ABN 23 141 574 914
Morgan Insurance Group endorses the Insurance Brokers Code of Practice. To obtain a copy of the code, click here.
Contact Morgan Insurance today on 1300 915 024.
