Premium financing comes with an interest component- around 20 per cent per annum. It is then calculated on a declining balance method
Is your yearly health insurance premium weighing down on you? You could then look at smarter strategies to handle it. You could, in fact, break down a big premium into small, affordable monthly installments or equated monthly installments (EMIs). You could then pay off your premium in monthly installments over a definite period.
You could do this with premium financing. It is essentially a financial method by which individuals or businesses can pay their insurance premiums upfront rather than in EMIs. Says Hanut Mehta, co-founder and CEO of Bimapay Finsure (a part of Hindon Mercantile): “Premium financing is a way by which you smoothen cash flow challenges, and allow policyholders to maintain liquidity without compromising on insurance coverage.”
How It Functions: Typically, in premium financing, fintech platforms that act as intermediaries between the customer, insurer, and lending institutions help customers compare plans, apply for financing, and manage the paperwork without any hassle. After getting approved, the lender disburses the premium to the insurer. This way you can get insurance coverage from day one, while payments continue over time.
Interest Rates And Repayment Terms: Premium financing comes with an interest component- around 20 per cent per annum. It is then calculated on a declining balance method. This essentially means that interest is only charged on the remaining loan amount. This reduces the total interest cost as you pay down the balance. While repayment terms are flexible, borrowers can opt for an insurance plan aligned with the insurance policy tenure or based on personal financial preferences. For instance, while someone with a one-year policy might opt for a 12-month EMI plan, another individual may prefer a longer tenure to keep monthly payments lower.
Other Costs Involved: Mostly, the lender or the fintech platform charges a small one-time processing or platform fee. Even then, the total cost of financing is lower than using a personal loan to pay for insurance. Hence, it's a cost-effective alternative.
Insurance Policy As Collateral: The insurance policy acts as collateral in a premium financing arrangement. This acts as a security for the lender’s risk, much like a loan against a gold or a property.
Premium financing is used for all kinds of insurance, such as health, life, and corporate insurance plans. It is especially popular in cases where the premium is quite heavy.