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Premium Finance Programs

WHAT TYPES OF PREMIUM FINANCE PROGRAMS ARE AVAILABLE?

Each premium finance company has its own unique program design. There may be different lengths of the loan, rates, fees and collateral requirements. Each premium financing program available in the marketplace can generally be place into one of the below categories.

NON-RECOURSE PREMIUM FINANCING

Non-recourse premium financing was widely available a few years ago, now however there are only a few companies out there which still have full non-recourse programs. These general terms of a non-recourse loan include the policy as the full and only collateral for the loan (through a collateral assignment on the policy), a term or 2 to 3 years, a fixed or floating interest rate and loan origination fees. Non-recourse premium financing programs are generally available to insureds over the age of 70 with at least a $2,000,000 net worth.

Non-Recourse Summary
• No additional collateral beyond policy
• Variable and fixed rates (higher than Partial-Recourse)
• Loan terms of 2-5 years
• Generally not insurance carrier approved.
• Not widely available.

PARTIAL RECOURSE PREMIUM FINANCING

Partial-recourse premium financing is currently the most popular type of premium financing, widely available and has generally replaced the non-recourse option. The key difference between partial and non-recourse is an additional collateral requirement on top of the policy that must be posted by the insured or borrower. Most commonly, in addition to the policy, an additional collateral amount of 25% of the current outstanding loan value in the form of a letter of credit or personal guarantee is required by the premium finance company. In addition to the additional collateral requirement, partial recourse programs distinguish themselves by being carrier approved programs. That is the insurance companies have reviewed the program and have generally approved the premium finance companies program structure and agree to issue policies under the program. Also, the programs come with various loan terms of 2, 3, 5 and 10 years in addition to lifetime loans. The rates may vary but are generally variable or fixed and tend to be lower than their non-recourse counter parts. Partial-recourse programs are usually available to insureds over the age of 60 with at least a $1,000,000 net worth.

Partial-Recourse Summary
• Additional collateral requirement for a percentage of the loan value
• Variable and fixed rates (generally lower than Non-Recourse)
• Loan terms of 2, 3, 5, 10 years and lifetime loans
• Insurance carrier approved
• Widely available