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Home > Blog > What Are the Cash Flow Benefits of?Business Insurance
TUESDAY, JUNE 30, 2020

What Are the Cash Flow Benefits of?Business Insurance

Running a business is all about taking on risk and managing that risk to protect your cash flows and your profits. When you're looking at insurance, you should look at it as a tool to help you with your cash flow, rather than as just an expense. Here's how business insuranceBusiness Insurance computer button benefits your cash flows. 

Insurance Premiums Are a Deductible Business Expense 

As a general rule, you can deduct the amount you pay for business insurance of any kind as a business expense. While you have cash going out to pay your insurance premiums, you also have less cash going out to pay your taxes than you would have if you weren't paying for insurance. That means your insurance gets discounted by the amount of your tax bracket. For example, if your monthly insurance premium is $100 and your effective income tax rate is 20%, the $100 deduction saves you $20 in taxes, so your insurance actually only costs you $20 per month. 

You Don't Have to Worry About Paying Claims 

In most businesses, you don't want to hold more cash than you need for your routine operations. Investing that cash back into your business can get you a better return. The problem is that your cash flow can get tight when you have unexpected expenses. That's where insurance can help. 

For example, assume you run a landscaping company and you know you're going to accidentally hit a rock and dent a car or break a window several times per year. If you don't know when you're going to have to pay a few hundred or thousand dollars in damages, that means you have to hold onto extra cash. If you use insurance to handle those claims, you only have to hold enough cash to pay for your monthly premiums. If this example sounds like something small enough or routine enough that you'd just pay cash, remember the same logic can apply to larger or less frequent claims that may have an even greater impact on your business. Therefore, don't consider cash on hand as an alternative to a solid commercial insurance policy. 

You Can Insure Your Actual Cash Flows 

If a natural disaster, pandemic, fire, or other loss forces you to close your business, you can often get insurance to cover your lost revenues. This is a special type of business insurance called lost income or cash flow insurance. It pays you the revenue you lose so you have cash to pay your expenses. 

Posted 8:11 AM

Tags: business insurance
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