Financing Entity
What Does Financing Entity Mean?
A financing entity refers to any entity that holds direct ownership in a policy or certificate involved in a settlement contract. Additionally, the financing entity has a written agreement with one or more licensed settlement suppliers to finance the acquisition of various settlement contracts. Therefore, a financing entity could include:
- An underwriter
- A lender
- A placement agent
- A purchaser of a certificate or policy from a settlement provider
- A purchaser of securities
- A credit enhancer
Insuranceopedia Explains Financing Entity
In a financing agreement, there are typically two parties: the financed entity and the financing entity. The financing entity usually provides funds to the financed entity, with other entities potentially acting as intermediaries. To provide these funds, the financing entity may borrow money from a bank or another financial institution, often using assets as collateral.
For example, if a business sells its inventory to a financing entity, the financing entity may use this inventory as collateral to secure a loan from a bank. Once the loan is obtained, the financing entity transfers the loan funds to the business, which then uses the funds to repurchase its inventory. Additionally, the business pays a fee to the financing entity. Although the business continues to own the inventory in all practical aspects, the financing entity holds the legal title to the inventory.
In the insurance industry, financing entities are commonly associated with viatical settlements, where they engage in activities such as:
- Offering life insurance policies
- Purchasing life insurance policies
- Investing in life insurance policies
- Financing life insurance policies
- Selling life insurance policies
- Underwriting life insurance policies
