# What Is a Premium Finance Agreement? Paying NEMT Insurance Monthly Without a Lapse

Canonical URL: https://nemtguide.com/glossary/premium-finance-agreement/ · Updated 2026-10-02

A premium finance agreement is a loan that pays your insurance premiums to the insurer up front, which you repay with a down payment and monthly installments plus a finance charge. The agreement can give the lender a power of attorney to cancel your policies if you miss a payment, and for a NEMT company that cancellation can end a broker contract.

- The lender pays the insurer, you repay in installments, and a power of attorney lets the lender cancel your policies after a missed payment.
- Texas requires a notice of intent to cancel mailed at least 10 days before the cure date, and its Supreme Court held in 2017 that nine days is not enough.
- In Florida, the policy is canceled on the lender's request even when the notice was faulty. Your remedy is a claim for damages.
- After a cancellation, the unearned premium goes to the lender first, and only a surplus comes back to you.
- MTM Health's standard agreement ends immediately if you fail to keep insurance, so one missed installment can cost you your trips.

## How a premium finance agreement works

A NEMT company's insurance bill is large and due before the first ride. A premium finance agreement spreads it out. A finance company pays the premiums for the year to your insurer or agent, and you promise to repay that amount, plus a finance charge, in installments. Texas defines the agreement this way in Insurance Code 651.001, and your insurance agent is the one who prepares it and hands you the disclosures (651.155).

The agreement is a loan, so it has to show what the loan costs. In Texas it must be on a form the state approved and must list:

- the agent and the finance company, with their addresses
- each policy financed and its premium
- the down payment and the balance left to finance
- the finance charge, labeled "finance charge," and the same cost as an annual percentage rate
- the number of installments, the dollar amount of each, and when each is due
- how the late charge is figured, and how unused finance charge is refunded if you pay off early

Florida adds that the words "PREMIUM FINANCE AGREEMENT" must appear at the top, with a notice not to sign it while it has blank spaces (Florida Statutes 627.839).

The clause that matters most is the power of attorney. It lets the finance company cancel the financed policies in your name if you default on a payment (Texas 651.160, Florida 627.848). Your insurer then treats the cancellation as if you had asked for it.

### A billing example

Say your agent quotes $30,000 for a year of auto liability on three vans, general liability, and workers' compensation, and you finance it in Florida:

- You pay $6,000 down, so $24,000 is financed over 10 monthly installments.
- Florida caps the service charge at $12 per $100 per year on the financed balance, plus an additional charge of up to $20 (627.840). On $24,000 for 10 months, the most a lender may charge is $2,400 plus $20, or $2,420.
- At that maximum, your installment is $2,642 a month, or $26,420 over the term.
- If an installment is at least 5 days late, the lender may add a delinquency charge of $10 or 5 percent of the installment, whichever is greater (627.841). On $2,642, that is $132.10.

Texas instead ties the finance charge to the rate limits in its Finance Code (651.109). Whatever your state, put the down payment and every installment date into your [13-week cash flow forecast](https://nemtguide.com/templates/nemt-cash-flow-forecast/) the day you sign.

## What happens when you miss a payment

The lender cannot cancel on the day you miss an installment. It has to give notice first, and the steps are set by state law. In Texas, under Insurance Code 651.161 and 28 TAC 25.58:

1. **You miss an installment.** The lender may cancel only for failure to pay on time and in full.
2. **The lender mails you a "Notice of Intent to Cancel."** The cure date in it may not be earlier than the 10th day after the date the notice is mailed. A copy goes to your agent.
3. **You pay by the cure date, or the policy is canceled.** After that date, the lender mails a notice of cancellation to your insurer, and copies to you at your last known address and to your agent.
4. **The insurer handles anyone else owed notice.** If a law, rule, or contract requires notice to a government agency or other third party before cancellation, the insurer gives it within two business days and sets the effective date to allow for it.
5. **The refund goes to the lender.** The insurer returns the unearned premium to the finance company before the 61st day after cancellation (651.162). Any surplus over what you owe is refunded to you if it is $5 or more.

Texas enforces the 10 days to the letter. In BankDirect Capital Finance v. Plasma Fab, decided May 12, 2017, a lender dated its notice 10 days before the cure date but mailed it a day later, giving 9 days. Four days after the cancellation, a fire destroyed an apartment complex where the company's employees worked. The company paid the next day, the insurer refused to reinstate the policy and denied coverage, and a judgment of almost $6 million followed.

The company lost its claims against the insurer in the lower courts, and its case against the lender went on. The Supreme Court of Texas held that substantial compliance is not enough for a time limit: nine days' notice does not satisfy a ten-day rule, so the lender lacked the authority to cancel. The faulty notice gave the company a claim against the lender, not its coverage back.

Other states set different steps:

- **Florida.** The lender must mail at least 10 days' written notice before asking the insurer to cancel (627.848). The cancellation request goes on the state's standard notice, printed on pink paper, and takes effect one day after the date shown on it (Florida Administrative Code 69O-196.001, amended May 24, 2021). Once the insurer receives the lender's cancellation notice, the policy is canceled whether or not the lender gave you the 10 days' notice (627.848(1)(c)). Your remedy is a lawsuit against the lender for damages, with attorney's fees if you win. The insurer returns what you owe to the lender within 30 days, and a lender may not cancel only because you skipped a late fee (69O-196.028).
- **New York.** The notice of intent to cancel must give 10 days plus at least 3 days for mailing, with a copy to your agent (Banking Law 576). Mailing to the last address in the lender's records counts as notice, and those records are presumed correct. The insurer returns the unearned premium to the lender within 60 days, and it may keep a minimum earned premium of 10 percent of the gross premium or $60, whichever is greater.

## What a canceled policy costs a NEMT company

A canceled auto or liability policy stops more than coverage. MTM Health's standard agreement, in the January 1, 2023 version Pennsylvania posts, requires insurance at all times and says failure to keep it results in immediate termination. The same agreement requires notice of cancellation endorsements naming MTM, so the broker hears about the cancellation. See [what happens if your coverage lapses](https://nemtguide.com/guides/nemt-insurance-requirements/) for how other programs respond, and [certificate of insurance](https://nemtguide.com/glossary/certificate-of-insurance/) for the renewal dates brokers track.

The money side hurts too. The refund of unearned premium pays your loan first. If the refund falls short of your balance, the agreement is still a loan you promised to repay. And reinstatement is up to the insurer, as the Texas case shows.

The cheapest protection is cash on hand for the installment. Count the down payment as a separate bill on its due date, not as part of a monthly average, and size your reserve with the [cash reserve calculator](https://nemtguide.com/tools/nemt-cash-reserve-calculator/). If your premium itself is the problem, [NEMT insurance cost](https://nemtguide.com/guides/nemt-insurance-cost/) covers what drives it. For slow claim payments that make installments hard to meet, see [NEMT cash flow](https://nemtguide.com/guides/nemt-cash-flow/).

## How to check a premium finance agreement before you sign

1. **Check the lender's license.** Texas lists licensed premium finance companies on the Department of Insurance site. Florida licenses them through its Office of Insurance Regulation (627.828). New York requires a Department of Financial Services license unless the lender is a lending institution or an authorized insurer (Banking Law 555). California licenses them under its Industrial Loan Law, through the Department of Financial Protection and Innovation.
2. **Find the finance charge and the annual percentage rate.** Compare them with what a bank line of credit would cost for the same months.
3. **Write down the late fee and returned payment fee.** Florida allows $15 for a returned check.
4. **Learn the cancellation timeline.** Ask when a payment counts as missed, when the notice of intent goes out, and how many days the cure date gives you in your state.
5. **Decide who receives the notices.** The notice goes to the address on the agreement and a copy to your agent. Use an address someone checks every day, and ask your agent to call you the day a copy arrives.
6. **Ask about paying off early.** Texas lets you pay the full balance at any time and get a refund of unearned finance charge (651.158). Florida refunds it by the "Rule of 78ths" or a method at least as good for you (627.840).
7. **Make every installment automatic.** Pay from an account that always holds at least one installment, and check each due date against your payers' deposit days.

## Frequently asked questions

### Is a premium finance agreement the same as paying my insurer in installments?

No. A premium finance agreement is a loan from a finance company, with its own finance charge and its own right to cancel your policies. In Texas your agent prepares it, and it must name the agent, the finance company, each policy, the down payment, the finance charge, the annual percentage rate, and each installment (Insurance Code 651.151, 651.152, and 651.155). Ask your agent which kind of payment plan you are being offered.

### How much notice do I get before my policy is canceled for a missed payment?

In Texas, the cure date in the notice may not be earlier than the 10th day after the notice is mailed, and your agent gets a copy. Florida requires at least 10 days' written notice. New York requires 10 days plus at least 3 days for mailing, with a copy to your agent. The clock starts when the notice is mailed, not when you read it.

### What happens to my unearned premium if the finance company cancels?

It goes to the finance company first. Texas insurers must return it to the lender before the 61st day after cancellation, Florida insurers within 30 days, and New York insurers within 60 days on a pro rata basis. A New York insurer may keep a minimum earned premium of 10 percent of the gross premium or $60, whichever is greater. Anything left after your balance is paid comes back to you, in Texas only if it is $5 or more.

### Can the finance company charge any late fee it wants?

No. Florida caps the delinquency charge on a business agreement at $10 or 5 percent of the late installment, whichever is greater, once the installment is at least 5 days past due, and a returned check at $15. Texas allows only the charges its premium finance chapter authorizes, and you can sue within two years to recover twice any unauthorized charge you paid (Insurance Code 651.108 and 651.166).

### Will my insurer reinstate the policy if I pay right after it is canceled?

Reinstatement is the insurer's choice. In the 2017 Texas case, the company paid the overdue amount the day after a fire, the lender asked for reinstatement, and the insurer refused under its own rule against reinstating a policy canceled three times. Pay before the cure date in the notice, not after it.

## Official resources

- [Texas Department of Insurance: Lists of licensed companies, including premium finance companies](https://www.tdi.texas.gov/webinfo/colists.html)
- [Florida Office of Insurance Regulation: Active company search](https://companysearch.floir.gov/)
- [New York DFS: Premium finance agency licensing](https://www.dfs.ny.gov/apps_and_licensing/premium_finance_agencies)
- [California DFPI: Directory of premium finance companies](https://dfpi.ca.gov/regulated-industries/premium-finance-companies/directory-of-premium-finance-companies/)