The Fallout of Paying Your Client's Premium

Recently, the following scenario was proposed to the faculty at Big "I" Virtual University's "Ask an Expert" program:

Q: If I pay the insurance premium on behalf of a customer and they don’t pay me back, can I order the carrier to cancel the policy for nonpayment?

A sampling of the responses:
"No. Only the insured or the carrier has the right to cancel the policy—not the agent. From the carrier's standpoint, the premium has been paid. Fronting money for an insured is always a bad idea for this very reason. It's not a good business practice. You could try to take legal action."

"I think you just learned a hard lesson – never advance payment. The carrier has been paid, so unless you have an agreement, such as those used by premium finance companies, you can’t force the carrier to do anything."

"The parties involved in an insurance contract are the insurer and the insured. The agent is the middleman. If the insurer has been paid and there are no other valid reasons for cancellation, an agent can’t legitimately order a cancellation. We all like to trust others, but some sort of written agreement involving a down payment would have been the best course of action."

As you hopefully know, this is not a good business practice. In fact, it would likely be considered as "rebating" in Tennessee – adding to the other problems the agent already has.

If your agency needs an option for clients who can't pay immediately, please contact our endorsed partners at Imperial PFS. They will finance agreements as low as $250, and have flexible terms with no volume commitments.

For more info, contact Hank Knight at hank.knight@ipfs.com or 443.613.4820.