Glossary

Premium finance

A loan from a licensed finance company that pays an insurance premium up front, repaid by the policyholder in installments with a finance charge.

Also called: premium financing, premium finance agreement, financed premium, premium finance company

Premium finance lets a business spread a large premium over several months. After a down payment, a premium finance company pays the insurer the full premium, and the business repays the company in monthly installments plus a finance charge. State law licenses and regulates these companies and sets the rules for the agreement.

The finance company's security is the policy itself. The agreement assigns the unearned premium to the lender and gives it power to request cancellation. If an installment is missed, the lender sends a notice of intent to cancel, with a minimum notice period set by state law. If the default is not cured, it asks the insurer to cancel and applies the returned unearned premium to the debt. The business is then uninsured from the cancellation date.

That is the pitfall. A financed policy can lapse over a single late payment, which may breach a lease, loan or contract insurance requirement, and certificate holders may be notified. Also compare the cost against the insurer's own installment plan, a pay-as-you-go workers' comp arrangement, or a deposit with audit adjustments. The guide on paying commercial premiums: installments and premium financing compares the options, and the premium finance calculator estimates the financing cost. See earned premium for how the refund on cancellation is computed.

Last reviewed October 10, 2026

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Related terms

Earned premium The share of a policy's premium that matches the coverage period already elapsed, which an insurer can book as revenue and keep if the policy ends early. Minimum earned premium A policy provision letting the insurer keep a stated percentage of the full premium if the policy is cancelled early, however little of the term has elapsed. Written premium The total premium on policies an insurer issues or renews in a period, counted when written, whatever share of the coverage period has passed. Pay-as-you-go A workers' comp billing arrangement where premium is calculated and paid each pay period on actual payroll, rather than as a large deposit trued up at audit. Binder Temporary written or oral evidence that coverage is in force on stated terms before the formal policy is issued.

Related guides

How to budget for business insurance Build an insurance budget from premium, deductibles, audits, taxes and fees, then test it against cash flow and total cost of risk, with a worked hypothetical. Policy cancellation and nonrenewal: notice periods and your rights How insurers cancel or nonrenew commercial policies, the ISO 10-day and 30-day notice baseline, and how New York, Florida and Texas rules change it. Is business insurance tax deductible? What counts and what does not Most business insurance premiums are deductible. Life insurance you benefit from, self-insurance reserves and income-replacement policies are not. Paying commercial premiums: installments and premium financing Carrier installment plans, premium finance loans and pay-as-you-go workers' comp compared, with the cancellation risk, cost math and agreement terms to check.

Related insurers

Fortegra Jacksonville specialty insurer writing E&S and admitted programs through MGAs plus warranty and credit protection; owned by Korea's DB Insurance since May 2026.

Related tools

Premium finance calculator Shows what financing a commercial premium costs: the payment, the total finance charge and the effective annual rate, compared with paying the premium in full.