Definition - What does Financing Entity mean?
A financing entity refers to any entity that has direct ownership in a certain policy or certificate that is the subject of a settlement contract. In addition, the financing entity has a written arrangement with one or more licensed settlement suppliers for financing the acquisition of various settlement contracts. As such, a financing entity could be:
- An underwriter
- A lender
- A placement agent
- A purchaser of a certificate or a policy from a settlement provider
- A purchaser of securities credit enhancer
Insuranceopedia explains Financing Entity
In a financing agreement, there are usually two parties, the financed entity and the financing entity. The financing entity typically provides funds to the financed entity, while other entities could serve as intermediaries. For providing the funds to the financed entity, the financing entity could borrow the money from a bank or another financial institution. In this scenario, the financing entity would need to use some assets as collateral.
For instance, suppose that a business establishment sells its inventory to a financing entity. Then, the financing entity uses this inventory as collateral for obtaining a loan from a bank. On receiving the loan, the financing entity will transfer the funds from the loan to the business establishment. The business establishment will use the funds for re-purchasing its inventory. In addition, it will pay a fee to the financing entity. Therefore, the business establishment continues to own the inventory for all intents and purposes. Yet, the financing entity bears the legal title for the inventory.
In insurance, financing entities are usually associated with viatical settlements. As such, they handle activities such as:
- Offering life insurance policies
- Purchasing life insurance policies
- Investing in life insurance policies
- Financing life insurance policies
- Selling life insurance policies and,
- Underwriting life insurance policies