Premium Deductions Can Help Lower Your Taxes

For individuals, filing taxes annually may feel like a payday if they get a refund. However, for businesses, filing taxes usually means writing a check to the IRS. Major tax deductible expenses can help lower that amount, and some of the largest eligible deductions are business insurance premiums.

When you are looking for insurance premium deductions, remember these two things: Insurance premiums are only deductible when paid towards policies that are in place solely to benefit the business; and generally, premiums paid towards group insurance benefits are deductible, as these policies are considered “beneficial” to the business. However, solopreneurs take note: premiums paid for one person – usually the owner – aren’t. That said, there are still many eligible premium deductions. Some common ones include:

  • group health insurance premiums, including premiums paid for other group medical policies, such as long-term care or accident insurance
  • worker’s compensation insurance per individual state laws
  • credit insurance providing protection against losses due to debts owed to the business
  • “overhead,” including “key man,” premiums, which provide coverage if a business incurs losses due to long-term disabilities, illnesses, or injuries to key employees
  • business interruption insurance premiums – a policy providing coverage if you shut down due to losses from covered perils such as fire
  • professional liability insurance premiums – this is the most common commercial insurance policy, protecting a business against any losses it is found liable for, as well as claims for defective work and negligence. It also covers common liability claims such as customer injury. Similarly, malpractice insurance premiums are deductible.
  • life insurance premiums paid for employees or officers of a company, but only if the business owner isn’t a primary or secondary beneficiary
  • commercial vehicle insurance policy premiums for vehicles used solely for business. However, if your business is going to claim a standard mileage deduction, you can’t use this; it’s only deductible if all car expenses are calculated and deducted. For example, if a business adds up all expenses for a vehicle, including maintenance and exact total mileage, then premiums will be deductible, as they’d be considered part of total expenses.
  • State unemployment insurance fund contributions may sometimes be deductible as a form of taxes if the contributions are viewed as “taxes” under state law.

Although life insurance premiums are often deductible, they may not be if they’re alongside various annuity product premiums. Additionally, premiums paid towards insurance in efforts to secure loans aren’t deductible.

Resources: Great resources include IRS Form 1040 and IRS Publication 535. Both include deduction calculation worksheets, and Chapter 6 of Publication 535 is dedicated to explaining what premiums are deductible. The IRS Tax Guide For Small Business (Publication 334) is helpful for small businesses.

Check annually for changes, and do think twice before you decide not to bother searching for eligible deductions; it’s very much worth the effort.

Should Your Contractors be Bonded or Insured?

If you own a business, you’ve likely heard the phrase, “bonded and insured.” And you may also have wondered what the differences are between being insured and having a surety bond. Many think they’re the same thing, but they’re not. Here are the main differences between being bonded and being insured:

Contract: Insurance is about managing risks. The contract is between the policyholder and the insurer, and essentially “guarantees” that the insured will receive compensation from the insurance company if a loss occurs, providing it is covered under the contract (policy).

A surety bond includes at least three parties: the “surety” or “guarantor” (which is in most cases is an insurance company), the principal (a second party that promises to do contracted work), and the “obligee” (a third party for whom the work is to be done.)

Type of protection: Insurance protects an insured business against certain risks, whereas a surety bond provides protection for the obligee of the bond. For example, if a business hires a bonded contractor to perform office renovations, and the contractor doesn’t fulfill the agreed-upon terms of the contract, the surety would pay the business owner – the obligee. Even if the contractor is insured and bonded, if there is a failure to perform the work, the insurer wouldn’t pay the business owner; the guarantor or surety is responsible.

Premiums: Insurance premiums are paid to cover a potential loss, whereas the premium paid for a bond is for guaranteeing that the person promising to fulfill contractual obligations, does so.

How to Save Money on Auto Insurance by Driving Less

Auto insurance. Repair. Maintenance. Taxes. Gas: Owning a car is expensive. Carpooling, using public transportation, walking, or biking can help save money. But if you don’t have those options, rarely drive, and want to save money, then what?

If you work from home, are retired, only drive occasionally, or have one pleasure vehicle you only take out on weekends, your best bet is still auto insurance.

How is that possible? Ask your agent about the following options:

“Pay-as-you-drive” (PAYD) policies

Many insurers now offer PAYD policies. This involves the addition of a device, easily installed below your steering wheel, that records how much you drive, when and where you drive, and your driving habits, such as the way you brake and accelerate. The insurance carrier calculates an amount monthly, and you simply pay for what you use. Even if you don’t like feeling as though you’re being “tracked,” consider the savings – some see premium reductions of up to 30 percent.

How is your vehicles rated?

On your insurance policy, your vehicle will be rated as “pleasure” or “work.” If you commute daily to work or school, your vehicle will be rated as “work”. If you’re retired, work from home, or drive only on weekends, it should be rated as a “pleasure” vehicle.

If your car has been rated as work and is now pleasure, there could be a fairly significant drop in premiums, since the likelihood of having an accident is reduced when you spend less time on the road. Check it out.

Want Lower Premiums? Look to Your Own Agent

When searching for ways to lower insurance premiums, you don’t have to look very far. By going over your policy and goals with your agent, you can find ways to save on your current policy. Here are three ways to get lower rates on your current policy.

Cut extra fees

Ask if you’re paying extra for such conveniences as monthly installment fees. If you pay your premium monthly, virtually every insurance carrier will charge you an installment fee of up to $5 a month.

By paying your premiums in full, or as much as possible over a couple of months, installment fees will be lower or removed completely (when paid in full). Setting up an electronic funds transfer (EFT) from your bank account can reduce or eliminate fees as well.

Some carriers also provide “paperless discounts,” easily obtained by agreeing to have all your policy documents sent electronically.

Improve your credit

Credit ratings are significant factors when calculating premiums. Some companies have become so strict with this they’ll sometimes refuse to write a policy for someone with poor credit, and existing policyholders may see premium increases at renewal or even policy cancellation notices for a worsened credit rating. The takeaway: improving your credit can help lower your rate.

Avoid making small claims

You don’t necessarily have to make a claim for minor damage. For example, if your rear-view mirror breaks, instead of filing a comprehensive claim, you could absorb the cost yourself. Most claims, regardless of size, will affect premiums for three to five years, and claims history plays a big role in premium calculations.

As well, once you’ve paid the deductible, you may end up paying more in higher premiums than by covering it yourself.

Go For the Win-Win

By working with your current insurance professional, you can avoid the disruption and frustration of looking around and reduce your premiums – a win-win.

Life insurance: Have Your Cake and Eat it, Too

Today, many retirees have enough income to live on, plus a small nest egg they’ve saved to pay for emergencies or leave to heirs if it’s not needed before death. The problem: The money in the nest egg is sitting in a low-interest account such as a certificate of deposit. That will reduce what is available for emergencies or what gets passed on to heirs.

What to do? Life insurance may be the answer. It usually is considered a way to provide for heirs in the event of one’s death, but there are many more creative uses, as indicated by the example below:

Take Jane Doe, who has $50,000 saved. She can buy a single-premium life insurance policy, which, when she dies, could provide her heirs with a lot more – maybe even as much as double the purchase amount. As well, her heirs could avoid probate and taxation.

On the other hand, Jane doesn’t want to tie up her nest egg in a life insurance policy in case she gets a terminal illness and can’t afford to pay for her medical expenses. Her solution: a single-premium life insurance policy with a built-in confinement and terminal-illness benefit. Policies such as these may accelerate the full death benefit to which the policyholder is entitled if he or she becomes ill. Some even offer a guaranteed surrender value no less than the money put into the policy.

In another example, retirees who want to make a contribution to a charitable organization without disinheriting their children put money into a single-premium life insurance policy, donating the dividend to charity and giving the death benefit to their children.

These are only two of many examples of the creative use of life insurance. Discuss them and others with your advisor who can help you decide which of these creative uses will work for you and your family.

Understanding Dual Dental Insurance Coverage

It could be said that limits on dental insurance plans are “vintage”: The general model hasn’t been updated since the 1970s, plus many health insurance plans don’t include dental coverage, and the Affordable Care Act (ACA) considers dental coverage essential for children – but not adults.

Most existing plans offer maximum annual limits of $500 to $1,500, and although that may have been adequate in the 1970s, now a couple of fillings or one root canal will likely max out one’s benefits. As a result, many go without much-needed dental care.

Dual coverage

There is a solution to this dilemma. Think “dual coverage.” But while it is possible to have two dental policies, there are restrictions around carrying two plans.

If you have dual coverage, you’ll have a primary plan and a secondary plan. The two insurers work together – known as “coordination of benefits” – to determine which is which, and which policy will pay for what. The general rule is that employer-sponsored coverage is the primary plan, and other plans – such as those bought privately or through a spouse’s employer or a retirement plan – would be secondary. The primary plan may also be the plan you’ve held for the longest time.

How dual coverage works

Assume each plan covers 80 percent of two cleanings annually. The two policies wouldn’t pay for four cleanings annually. Your primary plan pays first. Your secondary policy would be supplementary to the primary.

In the case of non-duplication clauses – which are standard in most policies – secondary policies only pay if the primary plan doesn’t pay up to the primary plan’s allowed amount.

For example, the primary plan will often cover 80 percent of services, while you have a co-pay 20 percent. But if, for some reason, the primary plan only pays 70 percent, the secondary policy would pay the 10 percent difference after you’ve paid the 20 percent co-pay amount.

When You Need it Accident Insurance Can be a Lifesaver

You’ve probably seen the commercials – with spokespeople ranging from cute ducks to serious-faced actors – encouraging you to buy accident insurance. You can skip the commercials, but don’t skip insuring yourself against the possibility of an accident. Here’s why:

  • Accident insurance provides peace of mind. It can help you pay your bills while you have little or no income, and can be a lifesaver if you’re severely injured and unlikely to work again.
  • Income from accident insurance is tax-free. Accident insurance is considered similar to a life insurance policy, so federal law protects payouts from income tax.
  • If you don’t have health insurance, accident insurance can pay for hospital and medical expenses. It pays out until you recover or until benefits are maxed out, whichever comes first.
  • If you do have health insurance, accident insurance provides additional benefits, even when your health insurance pays for some or all of your expenses.
  • If you’re injured and unable to pay tuition, accident insurance may pay a certain amount towards your kids’ education if they’re attending or about to enter college.
  • Nearly all occupations are eligible for coverage, although there are some limitations and exclusions. If your occupation is high risk, providing you’re eligible, accident insurance is a must.

Policies vary, so discuss options with your insurance professional; the small premium you’ll pay is well worth it.