Term
Premium finance
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Premium finance is a loan that lets a policyholder pay an annual premium in installments instead of one lump sum.
A third-party lender, sometimes an arm of the insurer or broker, pays the insurer the full premium upfront and the policyholder repays the lender over the policy term with interest, usually through automated debits. The financed policy itself typically secures the loan: if the borrower stops paying, the lender can cancel the policy and recover the unearned premium.
It exists because many commercial premiums, and some personal ones, are too large to pay in one instalment without straining cash flow, while insurers generally want payment upfront rather than carrying instalment risk themselves. The friction lies in what happens on cancellation and default, and in the fact that the finance carries its own interest cost layered on top of the premium, which buyers can overlook.
In insurance technology, this shows up as point-of-sale financing built into quoting and checkout flows, automated eligibility and rate calculation, integration with premium billing and cancellation systems, and EMI-style repayment plans offered directly through digital insurance platforms rather than a separate finance company.
Written by Insurtech Daily.
For the running coverage rather than the definition, see the Insurtech hub.