How to buy insurance a smarter way

Find out what most business owners don’t know about their insurance premiums and how you can buy insurance a smarter way.

Everyone needs insurance, especially business owners. It’s absolutely vital they are well covered not only personally, but also to protect their business against adverse events or shareholder buyouts. Over time, the cost to the business can end up being significant, but the cost of not having insurance could be even larger. But there are ways to structure insurance premiums that can provide big savings for business owners.

Retail method

When you take out insurance there’s usually an element of commission included in each premium you pay. If you’ve placed your insurance through a broker, then your broker receives this commission (it’s how he/she gets paid). Placing your insurance directly with the insurance company won’t get rid of the commission component either. Usually the insurance company takes that commission, as they don’t want to undercut the brokers they depend on for business.

The commission component included in your premiums can be anything from 0% to 250% of your first year’s premiums. The insurance company costs this into your premiums (ie. a portion of your premium is actually going in commission and not to pay for the insurance). Every year of your contract thereafter, your broker is still paid a percentage of your premiums (plus any premium increases) in commission. If you consider that you may have this insurance for 10-20 years or longer, then the commission component can be substantial over time.

Clearly, the commission rate will make a big difference to the cost of your premiums. But who decides what this rate will be? Your broker does.

Obviously your broker is entitled to be paid for the work they’ve done – advising you on the best insurance product for your needs, placing the insurance for you and looking after you thereafter. But there are a number of ways your broker can be paid handsomely while you make savings at the same time.

Wholesale method

People are either oblivious to the fact there is a commission component, or they operate under the assumption that you have to pay it. There are a number of alternatives when it comes to structuring and paying insurance premiums. The trouble is, you probably don’t know about them and nobody’s bothered to explain them to you. Because it’s your money, we think you should know about the alternatives, and you should be the one to decide how your premiums are structured.

Here are 3 ways you could buy your insurance:

1. Full commission component
2. Part commission component and part fee
3. No commission component and full fee

Fees vs Commission

If you buy your insurance by paying a fee, not only can this be tax-deductible to your company, but you pay it once only, not every year for the life of the insurance contract. The savings are obvious.

One client who opted to pay a once-only fee rather than commission, saved himself more than $14,000 in the first 10 years of the contract. He’s young and his insurance contract will continue for quite some years – which will make his savings over time substantial.

Just how much you’ll save depends on the type of insurance you’re looking to put in place as well as a number of other things. This can be accurately measured when the time comes to place the insurance, so that you can see how much you’ll save and be able to make informed decisions about your options.

There is almost always more than one way to buy your insurance and there are big savings to be made if you are given the knowledge and shown the alternative methods available to you.

While you’re there check out our last special offer for 2013 (it’s FREE) – Business Owners Essential Risk Review (available at the link noted above).