Whether it is for small family-owned businesses or large companies, insurance premium financing can be risky to undertake. Before investing in IPF it is necessary to consider factors such as the financier, the interest rate, the tax implications, the duration of financing and the terms of the agreement.
This article outlines the factors to consider when choosing insurance premium financing. Small, medium-sized or large businesses normally insure their businesses and assets against serious risks. Due to low, fluctuating or limited cash flows, the company may not be able to pay the premiums on time. This may cause them to lose insurance coverage which is detrimental depending on the item insured. To avoid lapse of policies, the company can seek an IPF.
Many banks in Kenya offer IPF. The bank to approach to finance the insurance premium is a major factor to consider. It is wise to seek IPF from a reputable bank and more preferably a bank you have previously transacted with. Some banks may not adequately finance your premiums due to their weak finance capital. Taking up loans from such banks will only increase your risks rather than reducing them.
It is advisable to approach banks that have credible customer service. Being able to communicate with the financier as soon as a need arises is a factor to consider. Some banks have very dependable agents who will clearly outline the requirements of the bank in IPF.
Taking up a loan attracts interest. It is fundamental to keenly check the insurance premium financing interest rate and the duration of payment. Very high interest rates would cripple the company even more while very low rates would most probably be over a long period. It is good to choose an interest rate that will not cause a serious financial burden to the company.
The terms and conditions of the agreement are an important tool to carefully investigate. Reading, understanding and evaluating the conditions put by the financier and the insuring company is key in order to avoid surprises and legal complications in the future. Skimming through the terms and conditions can lead to one missing a crucial binding statement. Take time to evaluate and consult in case you do not understand some statements.
While paying taxes loans can be considered as income. Another factor to scrutinize is if the loan will be tax-deductible. Consider the tax rate charged and the taxable amounts. It is necessary to find financial consultants to guide you on the tax implications caused by IPF.
In conclusion, insurance policy financing can be complicated and can be risky to undertake blindly. Understanding the risk involved helps avert legal problems and financial losses. Rushing into IPF without knowing the terms can be seriously destructive to a company.