Premium Finance

A lending arrangement in which a third-party finance company pays the insurance premium in full on behalf of the insured, and the insured repays the loan in monthly installments with interest. Law firms with large malpractice premiums often use premium financing to preserve cash flow rather than paying the full annual premium upfront. The finance company typically holds the policy as collateral and has the contractual right to cancel the policy for non-payment of installments. Firms should be aware that if the financing agreement lapses, coverage can be cancelled mid-term, potentially leaving the firm uninsured.