Premium Finance Agreement: Meaning & Example

In Plain English

Commercial premiums can be large. A premium finance company pays the insurer the full premium, and you agree to repay it, usually after a down payment. The agreement typically gives the finance company the power to cancel the policy if you default.

If the finance company cancels, any unearned premium goes back to the finance company to pay down the loan. Policies with a minimum earned premium or short-rate terms can leave you still owing a balance.

A missed payment can lead to cancellation faster than many owners expect. Keep the finance company's contact information handy and act on any notice of cancellation right away.

Not sure how your policy handles this? Have us review it, or get a quote.

Example

Hypothetical and simplified: an owner's package premium is $60,000. The owner pays $15,000 down and finances $45,000 over 9 months. If the owner stops paying in month 5, the finance company may cancel the policy and use the returned premium to pay down the loan.

Why It Matters for Texas Property Owners

Texas regulates premium finance companies. Before canceling a policy for nonpayment, the finance company must mail you a written notice that gives you until at least the 10th day after mailing to pay what's due, with a copy to your agent (Ins. Code §651.161). That window is short, so open mail from your finance company promptly.

What to Watch For

Compare the total cost of financing, including fees and interest, with paying in full.
Set up automatic payments to avoid missed installments.
Remember that a cancellation can lead your lender to force-place insurance.
Ask what happens to the loan balance if you cancel or sell the property mid-term.

Sources

Texas Insurance Code §651.161 (cancellation by premium finance company)

Last updated October 14, 2026 · Primesure editorial team · How We Write