Insurance premium financing (IPF) is a facility offered by financial institutions for the purpose of settling of insurance premiums for policies taken up by a policy holder. The policy holder agrees to repay the facility in installments including bank charges and fees
This mode of payment has become popular in the industry following the requirement for premium to be paid upfront by the regulator
How it works
The facility pays up the insurance premium in lump sum to the insurance company and provides relief to the policy holder to make repayments in installment
In the event that the policy holder defaults on payment the policies are cancelled and unutilized premium refunded to the financier
The current IPF facility in the market is mainly offered by conventional banks to pay premiums for covers offered by conventional insurance companies.
The mechanism behind the IPF is that the client deposits with the bank installment cheques to be banked at an agreed period. The policy/covers act as security for the financial institution
In the event of default the financial institution notifies the insurance company to proceed with cancellation of policies and refund the unutilized premium.
An IPF form is signed by the client, the financial institution and the insurance company to comply with the IPF requirements and conditions
The insurance company commits to the financial institution that it will proceed to cancel the cover (s) upon receipt of cancellation notification from the latter and refund unutilized premiums to the financier.
The facility is shorter with very low risk.
Financial institution have used this mode of financing to generate income though charging interest rate for the service.
The IPF is sold to clients with and without bank account with that specific financial institution.
The flexibility of repaying of insurance premium offered by the IPF has increased the uptake of insurance covers in the market.
This IPF is sharia compliant
Facilitates ease of payment of insurance premium for the bank clients and clients without accounts.
A sharia complaint IPF will also provide an avenue of generating income for the bank.
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