Understanding your insurance payment options
Within the insurance industry there are a variety of insurance premium billing programs that you may take advantage of when purchasing insurance.
- Direct Bill Some insurance companies bill the customer directly
without the insurance broker being involved. The customer receives a
monthly bill and mails the payment directly to the company. This type of
billing may allow various down-payment amounts and balance is billed
monthly without an interest or service charge. If the company offers
this type of billing some customers prefer this as they can come up with
a lower down payment and no interest charge.
- Premium Financing When an insurance policy is bound through an
insurance broker and the insurance company does not offer a billing
program the insured has several options. The insurance company must
receive full payment immediately from the broker. Therefore, the insured
may pay the annual premium in full or pay a down payment and premium
finance the balance. The standard for finance billing is to provide a
25% down payment plus fees and the balance is billed over 8 to 9 monthly
installments which includes interest. This is a viable alternative,
although there are interest charges, as some customers may have large
premiums and cannot come up with the annual premium at the time of
binding of the policy(s).
- Continuous Billing Policy Few companies offer this type of
billing. With this type of billing the insured at the time of purchasing
the insurance would provide a down payment which in effect is a deposit
which the company holds until the policy cancels. The annual premium
would be divided by 12 months and the insured would provide 2 months as
a deposit and make the first months payment. Thereafter, the company
will bill the insured monthly. If there are premium changes to the
policy during the year more deposit or return of deposit may occur.
Although there are no interest charges a monthly service charge may be
added to the bill.
Once a policy is in force there may be premium
changes as the insured may add or delete units or coverages. When these
changes are requested by the insured the broker will then inform the
appropriate insurance companies. If there is an addition of a unit or
an increase of coverage an estimate is quoted to the customer and 25% of
this premium is collected. If the policy is premium financed the balance
of the additional premium will be added the premium financing and billed
to the customer. The insurance company received full payment from the
finance company. If no financing exists the insured may be required by
the broker to provide the full estimated payment or wait until the
original endorsement from the company is received to obtain payment.
Deletion of coverage or unit will signal the company to return premium
to the premium finance company or the insured if there is no financing.
These additions and deletions are what cause confusion for the customer.
The insurance companies often take from 2 weeks to 6 months to process
endorsements and can be a paper lag time.
- Gross Receipts Billing This type of program is generally for
large fleets. The annual gross receipts are provided monthly and that
number times the insurance company rating factor will determine your
monthly payment. These programs vary greatly depending on the risk.
This is just a sampling of various billing programs available. It is
imperative that you understand the billing process to be able to take
advantage of programs that best suit your needs. Take advantage of your
insurance broker to answer any questions that you may have.
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