Operator Question: High Insurance Premium Industries

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June 01, 2024

by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School in Austin, TX, USA

For operators in industries with high insurance premiums, how do you decide between using your balance sheet to cover the premiums at the discounted annual rate versus financing the payments and taking the steady monthly payments?

My thoughts in the comments.

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Reply by a searcher
from The University of North Carolina at Chapel Hill in Austin, TX, USA
Discounts for annual payment can be as high as 15%-18%, but unless cash reserves are fully met and there are no projects the business could undertake that would return more than 20% on capital deployed would I pay the annual rate. Essentially, I would rather put the cash towards growing the business if the business has more than a 20% net profit margin.
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Reply by an intermediary
from Spalding University in Prospect, KY 40059, USA
^redacted‌ The trucking company I just exit had the same arrangement. I've found high risk industries or litigious risk classes see this option. Much like the bank, the insurance company wishes to have all the money for investment. It is a rocky road as a buyer. Cash is king.
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