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Tax Preparation & Health Insurance
What is business insurance?
As you would expect, business insurance includes policies of insurance (such as fire insurance) procured by your business to protect its physical assets. It also includes various forms of liability insurance similar to what you might have for your home and personal vehicle. The wide range of available insurance products offers your company more than just protection. These products also
In addition, many states require businesses to maintain certain insurance, such as workers' compensation insurance.
What types of insurance are available to your business?
There are numerous categories of insurance and many types of insurance products that are available within each of those categories. The major categories include life insurance, health insurance, disability insurance, property and casualty insurance, and liability insurance. Let's briefly run through those categories and what they have to offer you.
Your business might offer a group life insurance plan as an employee benefit either as a stand-alone plan or as one feature of a cafeteria plan. Such plans enable your employees to obtain, at favorable group rates, life insurance protection for themselves and their families. Moreover, these plans are a desirable benefit for your employees, especially for those who might otherwise be uninsurable, so you may be able to enhance your company's efforts to recruit and retain desirable employees by offering such plans. Under the tax code, these plans often enjoy favorable tax treatment with employer-paid premiums being deductible by your company and wholly or partially tax free to the employee.
Split dollar insurance
A split dollar life insurance arrangement, or SDA, is an agreement between an employer and an employee to share the costs and benefits of a life insurance policy on the life of the employee. An SDA is an agreement that concerns (at least in part) the premium payment (and its eventual repayment) for the life insurance; it is not a type of policy.
Split dollar arrangements are attractive to employees because they are able to procure more life insurance than they could on their own. A split dollar plan may be attractive to you as a business owner because eventually the premium payments are returned to you in full. Though usually offered at the executive level, split dollar plans can be offered to other employees as well.
Final regulations effective September 17, 2003, provide two mutually exclusive regimes for taxing split dollar life insurance arrangements: the economic benefit regime and the loan regime. Both the owner and the non-owner are required to fully and consistently account for all amounts under a split dollar arrangement under either the economic benefit regime or the loan regime.
Under the economic benefit regime, the owner of the life insurance contract is treated as transferring economic benefits to the non-owner. This regime generally governs the taxation of compensatory arrangements in which the employee is not the owner of the contract (e.g., endorsement split dollar arrangements).
Under the loan regime, the non-owner is treated as lending premium payments to the owner. The loan regime generally governs the taxation of collateral assignment split dollar arrangements (e.g., arrangements in which the employee is designated as the owner of the contract and the employer, or non-owner, pays all or a portion of the premiums).
There are several varieties of split dollar plans, including the endorsement method and the collateral assignment method. Within each of these varieties, there is great flexibility as to how a particular plan can be structured, and your company may customize a split dollar plan to best fit its needs. For more information, see Business Insurance: Split Dollar Life Insurance.
Property and casualty insurance
Specific forms of coverage available for the protection of your business include the following:
In most states, your company is required to maintain workers' compensation insurance, which provides compensation to your employees who are injured on the job. In return, they are usually prohibited from suing your company for those same injuries.
Two terms that are important to keep in mind when discussing liability insurance are defense and indemnification. Under most liability policies, the insurance company undertakes to defend you if there is a lawsuit filed or threatened; they will hire a lawyer to defend you and pay the lawyer's fees up to the policy's limits. This duty to defend can be valuable to your business because you do not have to divert funds from operations to pay the lawyer (thereby preserving your cash flow and making it more predictable). Moreover, via provisions included with many liability policies, and by law in many states, insurance companies are required to provide a defense if the complaint alleges some act or omission on your part.
A liability policy can provide protection for you even when you aren't liable for some alleged act or omission, freeing you and your cash to concentrate on the operation of your business. By obligating itself to indemnify you for acts or omissions covered under the liability policy, the insurance company must pay the third-party claimant(s) for any damages they sustained or pay any judgment rendered against you in a civil suit, up to the policy limits. If your company had to directly pay those sums, its operations could be negatively impacted; in fact, its very existence could be jeopardized. As with property and casualty insurance, there are comprehensive packages of liability insurance available to your business, so you can customize an array of policies to meet your particular needs. Specific forms of coverage available for the protection of your business include the following:
Umbrella excess liability coverage
Example(s): If your company has a liability policy with a $1 million limit, you can procure an umbrella policy providing coverage for amounts above $1 million, which will come into effect if your company is sued and a judgment is rendered against it for $2 million.
An umbrella policy is usually less expensive for your company than procuring an underlying policy with a higher policy limit.