Buy Now, Pay More Later

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.