Insurance premium finance: spreading the cost of business insurance

It is a short-term credit agreement, typically lasting up to the length of the policy, used to pay for insurance. A premium finance company pays the full premium to the insurer or broker, and you repay the finance company in instalments. Premium Credit, one of the lenders on our panel, describes this on its business insurance page: you sign a credit agreement, it pays your insurer directly, and it collects repayments by monthly Direct Debit.

The important point is that there are two separate relationships. Your insurance contract is with the insurer, usually arranged through your insurance broker. The finance is a separate agreement with the premium finance company. Premium Credit's commercial customer FAQs make the same distinction: the broker looks after the policy and the finance provider looks after the credit.

Most commercial general insurance can be spread this way, including:

• Commercial motor and fleet insurance.
• Employers' liability and public or product liability.
• Commercial property, contents and business interruption.
• Cyber, directors' and officers' and management liability.
• Combined packages for trades, retail, hospitality and manufacturing.

Whether a particular policy can be financed depends on the insurer, the broker and the premium finance company's own criteria.

• Businesses facing large renewal bills, particularly fleets and multi-policy programmes.
• Growing companies that want to keep cash for stock, wages or investment.
• Seasonal businesses whose renewal falls in a quiet month.
• Firms that prefer a predictable monthly cost they can budget for.

This is where premium finance differs from an ordinary loan. Premium Credit's FAQs say a default charge applies each time a scheduled payment is rejected or not made by the agreed date, and that missed payments are reported to a credit reference agency and may affect your credit rating. Most premium finance agreements also allow the finance company to have the insurance cancelled if instalments remain unpaid, which could leave the business uninsured, including for compulsory covers such as employers' liability or motor. Read your agreement carefully and talk to the finance company early if you are struggling.

Cancelling the Direct Debit does not cancel the credit agreement. Premium Credit's FAQs make this point.

• Company details and trading history.
• Business and director credit checks.
• Bank details for the Direct Debit.
• The size of the premium and the type of policy.

Spreading the cost is almost always more expensive than paying upfront, so compare the total amount payable under the finance with the annual premium. Remember that Insurance Premium Tax is part of most premiums: GOV.UK's guidance gives a standard rate of 12%, with a higher rate for certain types of cover. Check any default charges, and whether the instalment period matches the policy term. For a large insurance programme, it can be worth comparing premium finance with a general working capital loan or drawing on a revolving credit facility.

If you run an insurance brokerage and are looking for funding for the firm itself, see our page on insurance broker business finance. Fleet operators looking to spread the cost of the vehicles themselves can compare business vehicle finance. For more on the provider itself, see our Premium Credit page.