See what paying a commercial insurance premium in monthly instalments through a premium finance plan adds compared with paying in full.
Commercial policies in Canada are usually billed as one annual premium. If you cannot or prefer not to pay it at once, your broker may arrange a premium finance agreement: a finance company pays the insurer and you repay the company in instalments with interest, often after a down payment. Some insurers instead offer their own monthly billing with an instalment fee. This calculator shows what a finance plan costs.
How to use it. Take the total premium including provincial tax. Subtract the down payment and enter the rest as the amount financed. Enter the annual rate shown in the finance agreement and the term. A 12-month plan is 1 year; for a 10-instalment plan enter 0.833 years. Enter the down payment so the total includes it.
Formula. The instalment uses the standard repayment formula: payment = P x r / (1 - (1 + r)^-n), where P is the amount financed, r is the annual rate divided by 12 and n is the number of months.
Worked example (illustrative). A $3,600 annual premium with a 20% down payment of $720 leaves $2,880 financed. At 12% a year over 12 months, each instalment is about $255.88, so 12 instalments total about $3,070.61. Add the $720 down payment and you pay about $3,790.61, which is about $190.61 more than paying $3,600 upfront.
Limits. Finance agreements may add a set-up fee or charge interest differently, so compare the total cost of borrowing stated in your own agreement. Most agreements give the finance company a power of attorney to cancel your policy if you miss a payment, and any refund goes to the finance company first, which can leave you uninsured. Check the agreement before you sign.
Worked Quotes and Checklists
How monthly payment plans and premium finance agreements work for Canadian commercial insurance, what they cost with worked arithmetic, and the cancellation risk if a payment is missed.
