This story appears in the
November 2004 issue of
Entrepreneur.
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Your business insurance premium is due, and your agent asks if
you want to pay one lump sum or make payments. You opt to make
payments-but what will it cost you?
Making payments on your insurance premium is essentially a
financing arrangement with interest involved, says Mark Burton, an
attorney with Hersh & Hersh in San Francisco. Whether the
insurer has a financing arm or your agent sets you up with a
premium finance company, the rates can be as high as 15 to 20
percent or more.
Burton offers two important suggestions to business owners who
want to make payments on their insurance:
1. Find out what the
interest rate is. If it's unreasonable, ask for a lower
rate. "This is a no-risk financing business. They'll
negotiate on the terms of those financing agreements," Burton
says. Or look for alternative financing. You might get a better
rate on a credit card-and get frequent-flier miles as a bonus.
2. Ask what happens
to any premium refunds that might be issued. Some finance
companies pass them back to clients; others apply them to the end
of your loan. In the latter case, you'll continue to pay
interest on the refunded amount, and the finance company will not
pay you any interest on the amount they're holding. Be sure
your contract calls for an immediate credit of any refunds.
Financing your business insurance premiums can be a smart cash
management tool-but only if you pay attention to the bottom
line.
Jacquelyn Lynn is a freelance business writer in Orlando,
Florida.