With inflation eating into disposable incomes along with a reduction in demand across the construction sector, trade businesses are starting to feel the squeeze on their finances. Insurance costs are always an area of focus and these are going up as well. One way to manage the cost of insurance without jeopardising the cover you have is to consider paying the premiums on a monthly basis via a premium funding agreement. While this will increase the overall cost (because of admin and interest charges), it improves the business’ cashflow position by spreading the cost throughout the year.

How does it work?

Your broker will set up a finance agreement between you and an independent premium funding provider, or they may have their own in house premium funding operation. Once that has been signed and a credit check completed a regular direct debit is created for the agreed amount. Typically this will be over 10 or 12 months. The premium funding company then pays your insurance premium up front on your behalf. Interest is charged on the premium and included in the monthly direct debit withdrawals, this is how the premium funding provider makes their money. There is usually a small administration fee in the first month also.

If you have a total loss claim during the year the full premium is still payable, so you must continue to make the monthly payments to the funding provider. Or the insurer will reduce your claim settlement by the amount still outstanding and this will be settled to the premium funder.

At renewal typically the funding agreement simply rolls over for another year, with the direct debits adjusted according to the new premium payable.

If you’re interested in paying your premiums this way please let us know when your renewal rolls around. New customers can select this payment option when they sign up.