“Buy now, pay later” company Coverpay will offer a general insurance product from next month aimed at consumers and SMEs after raising $2.5 million in launch funding to roll out its platform.

MD Steve Gilbert says the company has taken insights from "buy-now, pay later" in the retail sector in developing a product directed at insurance that will offer customers another policy payment option.

The Coverpay platform is embedded into a merchant’s existing transaction process and can be used at the checkout for online policy sales, within payment portals, on invoices or using embedded links.

The bill is split over 12 fortnightly payments for the customer and Coverpay pays the merchant in full. A fixed plan management fee of $7 is applied to each instalment.

Missed payment fees aren’t charged, with customers given three days to make up a payment. A default fee of $40 is added to an outstanding amount if payment is not received.

“Aligning with our guiding principles of fairness and transparency, we don’t charge interest, we don’t charge the merchant, our fees are fixed and transparent,” Mr Gilbert says.

“We considered weekly, fortnightly or monthly instalments however when you overlay a payment product like Coverpay with income cycles, fortnightly payments are better aligned to income-flow, particular with a product built for individuals and SMEs.”

Mr Gilbert says customers are encouraged to pay out their plan if they become “cashed up”, avoiding future fees and allowing people to use the platform to fill a short-term cash flow gap.

“Underinsurance continues to be a significant issue in Australia and we know that affordability is a key aspect of coverage choice,” he said. “We believe Coverpay can play a part in addressing underinsurance by directing more funds into a customer’s insurance budget.”

Initially, Coverpay will provide for payment plans up to $2500, but users are able to use an option for invoices up to $5000 through paying half as a deposit with the first instalment.

Mr Gilbert says some larger direct insurers have embedded monthly instalments into their internal systems for personal lines such as home and motor, but for SMEs and intermediated business payment choice is limited.

“From a customer’s perspective, internally embedded products generally don’t lead to the best user experience,” he said. “Coupled with this is the significant cost for insurers in managing the instalment process including dishonours and accounting.”

Mr Gilbert has more than 20 years’ experience in the insurance and finance industries and was the founder of Sports Underwriting. The Coverpay team also includes Rosalie Lau, Lisa Woodley, Vibul Imtarnasan and Kiersten Lethbridge.