Quick answer
Insurance premium finance lets a business pay an annual insurance premium in instalments instead of one lump sum. A funder pays the insurer upfront and the business repays the funder over the year. Ownright Custom Finance can look at whether premium funding, a working capital loan or a cheaper structure suits your cash flow.
Key points
- Spreads big annual premiums such as property, liability and fleet cover
- Instalments protect cash but usually cost more than paying upfront
- Cancelling cover can have consequences, so know the terms
- Other funding may suit better if you have several upfront costs
- Suits
- Businesses with large annual premiums and tight cash flow
- Common premiums
- Property, public liability, fleet, professional indemnity, workers compensation
- Security
- Usually the unearned premium; sometimes a guarantee
- Australia-wide
- Yes
What is insurance premium finance?
Insurance premium finance is a way to spread the cost of an annual policy across the year. Instead of paying a large premium on the renewal date, a funder pays the insurer and the business repays the funder in instalments, normally monthly. It is common for commercial insurance, where one renewal can include property cover, public liability, fleet and professional indemnity.
It solves a cash flow problem, not a cost problem. The business keeps cash in the account but usually pays a charge for the convenience. That is why it is worth comparing with other forms of business finance, particularly if your cash is under pressure from several directions at once. Ownright Custom Finance can help you weigh premium funding against alternatives, and arranges business finance in every state and territory.
When does premium funding make sense?
- A premium falls due just before a seasonal dip in sales
- Several policies renew in the same month
- A business has bought equipment and cash is short for insurance
- A new business needs cover before revenue is steady
- A contract or lease requires proof of insurance that cannot wait
- The owner wants to keep a cash buffer rather than empty the account
It makes less sense when the business has spare cash and the charge outweighs the benefit, or when the true fix is a broader funding problem.
What are the risks and trade-offs?
| Factor | What to consider |
|---|---|
| Cost | The total repaid is higher than the premium alone |
| Cancellation | Missed instalments may allow the funder to cancel cover |
| Flexibility | Early payout rules differ between funders |
| Claims | Claims continue as normal, but instalments are still owed |
| Renewal | Next year’s premium may again need funding |
Read the contract carefully. The MoneySmart site run by ASIC explains how to approach borrowing decisions in general, and your insurance broker can explain how the policy wording interacts with the funding agreement.
What do funders and lenders look at?
Premium funders often rely on the unearned portion of the policy as security. If you stop paying, they can cancel and recover what remains. So their checks may be lighter than for a standard loan. Still, they commonly look at:
- The policy schedule and renewal date
- The business name, ABN and structure
- Repayment history on any previous premium funding
- Bank details for direct debit
- Sometimes a guarantee from the directors
If instead you apply for a general business loan to pay the premium, lenders look at trading history, bank statements, existing debts, the owner’s credit and security. See working capital loans for how that works.
What are the alternatives to premium funding?
- A business line of credit, drawing for insurance and repaying as sales arrive
- A short-term working capital loan covering several costs at once
- A small unsecured loan for modest premiums
- Negotiating a payment schedule directly with the insurer
- Restructuring existing debt to free monthly cash flow
- Reviewing the policy with your broker to see whether cover or excess can be adjusted
Our business line of credit and cash flow loans pages explain these. The guide on line of credit versus overdraft versus term loan helps you choose.
How does Ownright approach premium costs?
We do not sell insurance and do not make insurance recommendations. What we do is look at the whole cash picture. Trevor Scott has more than 40 years in finance, and a lot of that time has been spent finding the cheapest-to-arrange route through a tight patch. Sometimes that is premium funding, sometimes it is a modest unsecured facility, and sometimes it is a deeper restructure because insurance is only one of several bills squeezing the business.
If the business has been declined by its bank or has an ATO balance, we can also look at wider options through small business loans or unsecured business loans.
What does an illustrative scenario look like?
This is illustrative only. A small building company renews its liability, tools and vehicle cover in the same fortnight, right when two clients are late paying. The owner does not want to drain the account. We would compare spreading the premiums through a funder with a short-term facility that also covers wages. The better choice depends on total cost, flexibility and the risk of cancellation if a payment is missed. We explain both paths in plain English, and approval is never assured.
What mistakes should you avoid?
- Signing premium funding without reading the cancellation terms
- Missing an instalment and finding cover has lapsed
- Assuming premium funding is the cheapest source without comparing
- Funding insurance on a card and rolling it into expensive debt
- Skipping cover altogether to save cash
- Leaving the renewal to the last day
What documents should you have ready?
- The insurance quote or renewal notice
- Policy schedules and any broker invoice
- Business bank statements for recent months
- Your ABN or ACN details and ID
- A list of other upcoming costs
- Details of any existing finance
The guide on short-term versus long-term business loans is a useful read before you choose the funding term.
How can you reduce the size of the premium itself?
Before funding a premium, it can pay to shrink it. Ask your insurance broker to review cover levels, the excess you are comfortable carrying, and whether you are paying for risks you no longer have, such as old equipment or a closed site. Bundling policies, improving security or safety records and keeping claims history clean can all influence what insurers charge. None of that is advice on what cover you should hold; it is simply a prompt to have the conversation before renewal day.
Timing matters too. Brokers often need several weeks to approach the market, so starting early gives more choice and more time to arrange funding if you need it. If the renewal is close and cash is short, tell us the date and the amount, and we can look at whether premium funding, a small facility or a restructure of other payments is the quickest sensible fix.
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How it works, step by step
- 1
Step 1
Tell us the premiums, due dates and what else is draining cash.
- 2
Step 2
We compare premium funding with other structures that might cost less or suit better.
- 3
Step 3
We approach funders or lenders as appropriate.
- 4
Step 4
Documents are signed and the insurer is paid as agreed.
Frequently asked questions
What is insurance premium finance?
It is a payment arrangement where a funder pays your annual insurance premium to the insurer and you repay the funder in instalments, usually monthly. It helps cash flow but typically costs more than paying once. The insurer or broker often offers it at the time of purchase, so read the terms carefully.
Does premium funding affect my cover?
It can. If instalments are missed, the funder may be able to cancel the policy and claim the unused portion of the premium. That could leave your business exposed. Read the cancellation terms before signing and keep payments on time. Ask your insurance broker about the specific wording.
Is premium finance a loan?
Functionally it behaves like one, because you repay with a charge on top of the premium. How it is regulated depends on the arrangement and who the borrower is, and business purposes can sit outside some consumer rules. Check ASIC and MoneySmart for the current position and ask for the full cost in writing.
Is a business loan better than premium funding?
Sometimes. If you have several upfront costs, one working capital loan may be simpler than separate instalment plans. Costs, flexibility and terms differ. We compare the options for your situation, including how each affects your cash flow across the year.
Can I fund insurance with bad credit?
Sometimes. Premium funders often rely on the unearned premium as security, so credit history may carry less weight than with a standard loan. Other funding routes may be harder. Tell us about your file and we will work out what is realistic.
What insurance can be funded?
Commercial policies are most common, including property, liability, motor fleet, professional indemnity and workers compensation. Smaller premiums may not be financed. Funders usually set minimums and conditions. Ask the broker or us which policies are eligible.