Many people have heard of premium finance companies but few now what this really means especially if they have never needed their services. By definition, a premium finance company is an institution which deals with lending a certain amount of money whether to a person or to a company. The goal of this transaction is to cover the costs of the premium insurance with a certain profit.
To be eligible for this type of life insurance, you must fulfil several important criteria. First of all, the person or the company who aims to obtain the insurance founds must provide the value of an asset or a net worth. The second step which must be taken, is to fulfil the necessary formalities. The person or the company’s assignee must sign an agreement with the premium finance institution. The contract may last for an unlimited period of time but the minimum period is for tow years. Anyone who wants to receive this insurance may apply with the help of a premium broker.
Once the premium finance is approved, the premium finance company will lend you the money and you will be billed monthly until you cover the cost of the transaction. Depending on your needs, you can sign a contract for tow to five years or for a longer period of time. There is one thing you have to remember though before you apply. Since you will receive a significant amount of money, the monthly costs will also be high. The good thing about this, is that after a period of tow years you allowed to sell your insurance to another beneficiary excluding the interest which is charged by the premium company and the paid to day rates.
Depending on your area of activity, you can choose between three types of premium financing such as:
1. The hybrid financing which means that the insurance payment is set for a short period of time between tow to five years. The terms of this type of contract include the following taxes: tow percent of the benefit upon death, widespread loans and a reduction of producer’s compensation.
2. The traditional financing offers the most favourable loan rates. The borrower is allowed to use other assets especially those who have illiquid net worth.
3. The third option is to apply for the non-recourse financing. This type of financing is not advantageous since it may contain hidden fees and also liability risks which may disadvantage the insured.
Thus, in order to be sure that there is a great chance for a nice profit, the premium finance companies look for clients who prove to be healthy eliminating the risks of not being able to pay the loans. These companies are also very interested in the client’s estate plans in order to see whether he is an eligible candidate.