Finance Company Insurance Policy Information

Finance Company Insurance. Finance companies are an increasingly popular option among private individuals and businesses seeking loans.

Finance companies are financial institutions that accept monetary deposits from banks and other money market sources and use those funds to make loans to individuals and businesses for a variety of installment sales such as automobiles, boats, or equipment.

They may be affiliated with a manufacturing firm, such as an automobile manufacturer, and finance installment sales solely for that firm's products. Finance companies earn income from interest charged on loans, profits from investments, and transaction fees.

They may also service escrow accounts, may be involved in real estate services and transactions, or broker and sell loans to other operations.

While consumer finance companies and sales finance companies represent an alternative avenue to obtain short-term loans to individuals and commercial ventures respectively, finance companies can also be associated with larger parent companies.

Because of the nature of their work, finance companies are well-versed in risk assessment and management - but the fact remains that finance companies, too, can find themselves facing circumstances beyond their control.

That is why it is crucial for these businesses to protect their interests with outstanding insurance coverage. What types of finance company insurance are needed? Read on to learn more.

Finance company insurance protects your financing and loan business from lawsuits with rates as low as $37/mo. Get a fast quote and your certificate of insurance now.

Below are some answers to commonly asked financing company insurance questions:

What Is Finance Company Insurance?
How Much Does Finance Company Insurance Cost?
Why Do Finance Companies Need Insurance?
What Type Of Insurance Do Finance Companies Need?
What Does Finance Company Insurance Cover & Pay For?

What Is Finance Company Insurance?

Finance company insurance is a type of insurance coverage designed specifically for financial institutions and companies that offer lending and financing services. This insurance protects the company against losses and financial liabilities that may result from loan defaults, fraud, theft, and other unexpected events.

The coverage can include loan protection, financial liability, cyber risk, and professional indemnity insurance. The purpose of finance company insurance is to provide peace of mind and financial security for lenders, helping to protect their investments and ensuring the stability of their business.

How Much Does Finance Company Insurance Cost?

The average price of a standard $1,000,000/$2,000,000 General Liability Insurance policy for small finance companies ranges from $37 to $59 per month based on location, size, revenue, claims history and more.

Why Do Finance Companies Need Insurance?

Finance companies should carry comprehensive insurance primarily because they, like any other business, are vulnerable to a wide range of hazards.

The risks finance companies face include universal risks as well as threats unique to this branch of commerce, and while not every eventuality is insurable, many of the perils that can take down a business are.

A finance company's commercial premises could, for example, be impacted by an act of nature - like a wildfire, earthquake, or hurricane. Theft, vandalism, and accidents can strike almost any business.

Without the right finance company insurance, the resulting losses could easily be so extensive that the company would go bankrupt, but equipped with excellent coverage, these challenges can be overcome.

Liability risks represent the other major category of concern. An employee could sustain a work-related injury, a third party, such as a client or vendor, could be hurt on the premises, or a finance company could face a lawsuit alleging negligent work. The legal costs that can arise from liability risks can, again, be massive.

The term "unforeseen circumstance" exists with good reason - it is impossible to predict when a major peril will impact your business, and even with the most effective precautions, mishaps may not be preventable. Finance companies that have invested in top-notch insurance will never have to worry that they are unprepared.

What Type Of Insurance Do Finance Companies Need?

The precise types of coverage that will best protect a finance company against financial losses, as well as the cost of insurance, depends on numerous factors.

The location of the company, the size of the business, and the number of employees are merely some examples of the variables that influence a finance company's insurance needs.

For this reason, it is imperative to consult a skilled commercial insurance broker, who will create the best possible insurance plan. With that in mind, here is a look at the essential types of finance company insurance that are usually needed:

Commercial Property - This type of finance company insurance is designed to help businesses manage events in which their commercial premises are damaged, such as theft, vandalism, and natural disasters. The building is covered, alongside many of its contents, such as furniture and computers, and that means your insurance will pay for repair and replacement costs. With additional business interruption coverage, it is additionally possible to recover some of the revenue lost to temporary business closures resulting from the peril.
Commercial General Liability - Should a finance company face a third party property damage or bodily injury claim, commercial general liability insurance pays for a significant portion of the associated legal costs, whether they arise in the form of attorney fees or settlement payments. This form of coverage is an essential part of any company's legal defense plan.
Errors And Omissions - Also called professional liability insurance, E&O coverage shields your company from the legal costs associated with allegations that it was professionally negligent in carrying out its work.
Workers Compensation - Even in companies where the majority of employees carry out administrative tasks, workers can be injured on the job. Should this happen, workers comp covers their medical costs, but also reimburses their lost wages if they are rendered unable to return to work for a time.

While these examples of coverage that should carried will get your business closer to being fully insured, be aware that you may require additional forms of finance company insurance.

To discover more, discuss your unique circumstances with a skilled commercial insurance broker.

Finance Companies' Risks & Exposures

Premises liability exposure comes from slips and falls due to public access to the premises. Customer safety and security are very important. Floors, stairs, and elevators need to be in good condition, with steps and uneven floor surfaces prominently marked. The number of exits must be sufficient and well-marked, with backup lighting in the event of a power failure.

Steps should have handrails, be well-lighted, marked, and in good repair. Parking lots and sidewalks need to be in good repair with snow and ice removed, and generally level and free of exposure to slips and falls. There should be security in the parking lot equal to or better than the surrounding area.

Personal injury exposure arises from breaches of customers' privacy and confidentiality of their financial records and discrimination in lending practices.

Product liability exposure is very low as financial products sold to customers are intangible. There may be some minor exposure if the company sells items like tee shirts or advertising novelties or offers small gifts to customers as a reward for doing business with them.

Directors' and officers' exposure can be substantial due to competing priorities of numerous stakeholders such as stockholders, bondholders, depositors, loan holders, employees, and regulators. Directors and officers are more likely to be sued for results of their decisions in times of economic downturn and well-publicized excesses within the financial services industry.

Finance companies may offer escrow fund handling and other financial activities. Directors and officers can be sued if funds from any of these are mismanaged. Officers must be thoroughly knowledgeable about the finance business, able to operate competitively while maintaining profitability, and able to oversee ongoing operations effectively.

Directors should include representation from a wide variety of business interests with no conflicts of interest.

Errors and omissions exposures from accountants and auditors can cause significant loss. There must be checks and balances in place to quickly catch and fix errors that are made. The background and training of all professional-level employees must be thorough and continual to keep up-to-date with industry changes. Monitoring is necessary.

The loan handling, record keeping, and accounting of the inflow of payments from customers is an area to review. If the finance company services mortgages, they must verify that all mortgaged properties have hazard insurance. A mortgage errors and omissions policy provides blanket coverage for any inadvertent omission.

Workers compensation exposure exposures are generally light as finance companies are less visible and less attractive for holdups than other financial institutions. As most work is done on computers, employees are exposed to eyestrain, neck strain, and repetitive motion injuries including carpal tunnel syndrome. All workstations should be ergonomically designed to reduce the chance of such injury.

Property exposures are primarily from fire due to the electrical wiring for computers, printers, and other electronic office equipment, heating, and air conditioning systems. All wiring must meet current codes, be well maintained, and be adequate for the company's operations.

Circuitry on electronic equipment may be easily damaged from smoke, water, and heat, which will cause a total loss even with a small fire. Extra expense coverage should be considered as the finance company must continue operations after a loss.

Crime exposure is primarily from employee dishonesty, either from the theft of cash or from the improper transfer of funds held for customers. Finance companies need a Financial Institutions Bond to cover these exposures. Background checks should be conducted for anyone who will have access to the accounts. There must be regular monitoring and auditing of the books by outside auditors to prevent and identify problems.

All employees must take at least one continuous week of vacation a year. Controls and programming to prevent computer fraud should be reviewed. Extortion is a growing concern due to the high value of assets held by these companies.

Inland marine exposures are from accounts receivable for billings to customers, computers for tracking financial data, and valuable papers and records for customers' and regulatory information. Backup copies of all records, including computer records, should be made and stored off premises for ease of restoration in the event of a loss.

Business auto exposures may be limited to hired and non-owned for employees running errands. If vehicles are provided to officers or key employees, policies should be in place for personal and permitted use of the vehicles. Any driver must have a valid driver's license and acceptable MVR. Vehicles must be well maintained with records kept in a central location.

What Does Finance Company Insurance Cover & Pay For?

Finance companies can be sued for various reasons, including but not limited to:

Fraud or Misrepresentation: If a finance company is accused of engaging in fraudulent activities or misrepresenting information to clients, such as providing false investment advice or misrepresenting the terms of a loan or investment, they may face lawsuits from affected parties.
Insurance can help protect finance companies by providing coverage for legal defense costs, settlement payments, or judgments if the finance company is found liable for fraud or misrepresentation.

Breach of Fiduciary Duty: Finance companies that act as fiduciaries, such as investment advisors or trustees, have a legal duty to act in the best interests of their clients. If they fail to fulfill this duty and are accused of breaching their fiduciary duty, they may face lawsuits.
Insurance can provide coverage for defense costs and damages resulting from a breach of fiduciary duty claim.

Violation of Securities Laws: Finance companies that are involved in the buying, selling, or trading of securities are subject to various securities laws and regulations. If they are accused of violating these laws, such as insider trading, market manipulation, or failure to disclose material information, they may face lawsuits from regulators, investors, or other stakeholders.
Insurance can help finance companies by providing coverage for legal defense costs, fines, and penalties associated with securities law violations.

Employment Practices Liability: Finance companies can face lawsuits related to employment practices, such as discrimination, harassment, wrongful termination, or wage and hour disputes.
Insurance can provide coverage for defense costs, settlements, or judgments arising from employment-related claims.

Data Breach or Cyber Liability: Finance companies often handle sensitive financial and personal information, and if there is a data breach or a cyber-attack resulting in financial losses for clients or third parties, the finance company may be held liable.
Insurance can provide coverage for costs associated with data breaches, such as legal defense, notification and credit monitoring expenses, and damages resulting from data breaches or cyber-attacks.

Insurance can help protect finance companies by providing coverage for legal defense costs, settlements, judgments, and other damages resulting from lawsuits. Depending on the specific policy coverage, insurance can help finance companies mitigate the financial impact of lawsuits and protect their assets and reputation. It's important for finance companies to carefully review their insurance policies to ensure they have appropriate coverage for their specific risks and consult with insurance professionals for expert advice.

Commercial Insurance And Business Industry Classification

SIC CODE: 6141 Personal Credit Institutions, 6153 Short-Term Business Credit Institutions, Except Agricultural, 6159 Miscellaneous Business Credit Institutions, 6162 Mortgage Bankers And Correspondents, 6163 Loan Brokers
NAICS CODE: 522210 Credit Card Issuing, 522220 Sales Financing, 522291 Consumer Lending, 522292 Real Estate Credit, 522293 International Trade Financing 522294 Secondary Market Financing, 522298 All Other Nondepository Credit Intermediations, 522390 Other Activities Related to Credit Intermediaries
Suggested Workers Compensation Code(s): 8810 Clerical Office Employees NOC, 8742 Salespersons or Collectors - Outside

Description for 6141: Personal Credit Institutions

Division H: Finance, Insurance, And Real Estate | Major Group 61: Non-depository Credit Institutions | Industry Group 614: Personal Credit Institutions

6141 Personal Credit Institutions: Establishments primarily engaged in providing loans to individuals. Also included in this industry are establishments primarily engaged in financing retail sales made on the installment plan and financing automobile loans for individuals.

Automobile loans (may include automobile insurance)
Consumer finance companies
Financing of automobiles, furniture, appliances, personal airplanes,
Industrial loan "banks", not engaged in deposit banking
Industrial loan companies, not engaged in deposit banking
Installment sales finance, other than banks
Loan companies, small: licensed
Loan societies, remedial
Morris plans not engaged in deposit banking
Mutual benefit associations
Personal finance companies, small loan: licensed

Description for 6153: Short-Term Business Credit Institutions, Except Agricultural

Division H: Finance, Insurance, And Real Estate | Major Group 61: Non-depository Credit Institutions | Industry Group 615: Business Credit Institutions

6153 Short-Term Business Credit Institutions, Except Agricultural: Establishments primarily engaged in extending credit to business enterprises for relatively short periods. Private establishments primarily engaged in extending agricultural credit are classified in Industry 6159.

Business credit institutions, short-term Credit card service,
Direct working capital financing
Factors of commercial paper
Financing of dealers by motor vehicle manufacturers'organizations
Installment notes, buying of
Installment paper dealer
Mercantile financing
Purchasers of accounts receivable and commercial paper
Trust deeds, purchase and sale of
Working capital financing

Description for 6159: Miscellaneous Business Credit Institutions

Division H: Finance, Insurance, And Real Estate | Major Group 61: Non-depository Credit Institutions | Industry Group 615: Business Credit Institutions

6159 Miscellaneous Business Credit Institutions: Establishments primarily engaged in furnishing intermediate or long-term general and industrial credit, including the finance leasing of automobiles, trucks, and machinery and equipment. Included in this industry are private establishments primarily engaged in extending agricultural credit. Federal and federally-sponsored credit agencies primarily engaged in extending agricultural credit are classified in Industry 6111. Establishments primarily engaged in other types of leasing of passenger cars and trucks are classified in Industry Group 751.

Agricultural loan companies
Automobile finance leasing
Credit institutions, agricultural
Farm mortgage companies
Finance leasing of equipment and vehicles
General and industrial loan institutions
Intermediate investment "banks"
Investment companies, small business
Livestock loan companies
Loan institutions, general and industrial
Machinery and equipment finance leasing
Pari-mutuel totalizator equipment finance leasing and maintenance
Production credit association, agricultural
Truck finance leasing

Description for 6162: Mortgage Bankers And Correspondents

Division H: Finance, Insurance, And Real Estate | Major Group 61: Non-depository Credit Institutions | Industry Group 616: Mortgage Bankers And Brokers

6162 Mortgage Bankers And Correspondents: Establishments primarily engaged in originating mortgage loans, selling mortgage loans to permanent investors, and servicing these loans. They may also provide real estate construction loans.

Bond and mortgage companies
Loan correspondents
Mortgage bankers
Mortgage brokers, using own money
Mortgage companies, urban

Description for 6163: Loan Brokers

Division H: Finance, Insurance, And Real Estate | Major Group 61: Non-depository Credit Institutions | Industry Group 616: Mortgage Bankers And Brokers

6163 Loan Brokers: Establishments primarily engaged in arranging loans for others. These establishments operate mostly on a commission or fee basis and do not ordinarily have any continuing relationship with either borrower or lender.

Agents, farm or business loan
Brokers, farm or business loan
Loan agents
Loan brokers
Mortgage brokers arranging for loans but using money of others

Finance Company Insurance - The Bottom Line

To learn more about the specific types of finance company insurance policies you'll, what limits to consider and the associated premiums, consult with a reputable broker that is experienced in commercial insurance.

Additional Resources For Financial Institutions Insurance

Discover the types of commercial insurance that banks, finance companies and other financial institutions need to protect their asset management, deposit, lending, investment and other operations.

Financial institutions, including banks and finance companies, are responsible for managing and handling large amounts of money on a daily basis. With this responsibility comes a certain level of risk and potential for financial loss due to unexpected events such as natural disasters, cyber attacks, or employee theft.

Business insurance can help protect these financial institutions from financial loss due to unexpected events. For example, a natural disaster such as a flood or earthquake could result in physical damage to a bank's property or equipment, leading to costly repairs and lost revenue. Insurance can cover these costs and help the bank get back up and running as quickly as possible.

In addition, financial institutions are also at risk for cyber attacks and data breaches. These types of incidents can lead to significant financial loss, as well as damage to the institution's reputation. Insurance can provide coverage for the costs associated with responding to a cyber attack, including legal fees, notification and credit monitoring services for affected customers, and public relations efforts to repair any damage to the institution's reputation.

Finally, financial institutions must also consider the risk of employee theft or fraud. Commercial insurance can provide coverage for losses due to employee dishonesty, helping to protect the institution's financial stability and reputation.

In summary, financial institutions have a lot at stake when it comes to protecting their assets and reputation. Commercial insurance can help mitigate the risk of financial loss due to unexpected events, ensuring that these institutions are able to continue serving their customers and fulfilling their financial responsibilities.

Minimum recommended small business insurance coverage: Business Personal Property, Extra Expense, Equipment Breakdown, Financial Institutions Bond, Accounts Receivable, Computers, Valuable Papers and Records, General Liability, Directors' and Officers' Liability, Employee Benefits, Fiduciary Liability, Professional, Umbrella, Hired and Non-Owned Auto, Workers Compensation & Surety Bonds.

Other commercial insurance policies to consider: Buildings, Earthquake, Flood, Leasehold Interest, Real Property Legal Liability, Computer Fraud, Extortion, Fine Arts, Signs, Cyber Liability, Employment-related Practices, Law Enforcement Professional, Business Auto Liability and Physical Damage And Stop Gap Liability.

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