What is the collateral for an Insurance Premium Finance loan?

Collateral on an IPF loan is the Unearned premium.

A property-casualty insurance policy has a finite life, usually twelve months, and a predictable earning curve, usually 1/365 per day (called pro-rata earning) or 1/365 per day x .9 (short-rate earning). Knowing that, and the cancellation provisions of the policy, a down payment and a payment plan can be established that will ensure that the unearned premium remaining at any given time will be sufficient to pay off the balance of the loan, thus fully-collateralizing what amounts to an asset-based loan.

As part of the underwriting rules, you will have to set the allowable percentage amount for the down payment. Down payment sets up the collateral to debt position on the loan as demonstrated in the table to the right. Notice how fast the “Collateral to Principal Ratio” increases. This is due to the short-term loans.