Risky Business
A Small Business Insurance Guide for Independent Insurance Agents and Brokers

Chapter 4: Insuring Your Independent Brokerage
Part 1: Keeping Insurance Rates Low: Risk Management Tips for Agents

Nailing down an insurance plan is only part of an effective risk management strategy. After all, insurance can't prevent accidents from happening — it can only lessen the financial blow when they do.

Therefore, the most effective risk management strategies are those that try to ward off accidents before they happen (in addition to having adequate insurance protection as a safety net). This approach reduces your risks and ensures your insurance premiums stay as low as possible. Remember, your premium may be affected any time you make a claim on your policy.

Making claims on your insurance policies could affect your premium.

Here are a few ways you can keep your insurance claims to a minimum and guard your brokerage against unexpected expenses.

Ask Your Insurance Agent about Cost-Saving Measures

Generally, the extra measures you take to prevent losses could translate to lower premiums. Of course, you'll need to speak to an insurance agent before you invest too much time or money in these risk-reduction strategies. Some insurance providers won't lower premiums unless you follow their specific risk management guidelines. But to give you some ideas, here are a few cost-saving suggestions that your agent might recommend:

Installing a security system may reduce your Property Insurance premiums, depending on your insurance provider.

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  • Protect your office from potential damage. Simple, inexpensive "home improvements" are a great way to limit property damage (e.g., keeping a fire extinguisher on the premises or installing smoke detectors and sprinkler systems). Even if these precautions don't directly translate into lower premiums, they can save you a lot of heartache. Be sure to ask your insurance agent about ways to "disaster-proof" your office. For example, you may be able to update your electrical or plumbing system to see savings. In some areas, it may be beneficial to add storm shutters to your building.
  • Improve your security. Installing a security system may save you money on your Property Insurance premiums and help deter crime . Consider installing dead-bolt locks and a burglar alarm, too.
  • Opt for bundled insurance packages when possible. If you purchase your policies from the same provider, there are more opportunities to bundle policies and save money, as with Business Owner's Policies. A Business Owner's Policy combines your General Liability and Property Insurance together at a reduced annual rate.
  • Choose a higher deductible. A deductible is the amount of money you must pay toward a claim before your insurance benefits kick in. Generally, higher deductibles are paired with lower premiums, and depending on your needs, this option may save you money in the long run. That being said, it's never wise to take on a deductible so high that you couldn't afford to pay it if you file a claim.

Your brokerage may be able to save money on its Property and General Liability Insurance premiums by purchasing a Business Owner's Policy (BOP).

Again, if your goal is to reduce your premiums, always check with an agent before you make an expensive upgrade or change to your business.

Join a Professional Organization

Joining a professional organization has its benefits. It can build your credibility among clients and your presence among colleagues. Below is a list of professional organizations for brokers and insurance agents:

In addition to boosting your credibility, belonging to a professional organization may also help you reduce your firm's risks. Professional organizations offer their members many resources, some of which are directly related to risk mitigation. For example, you may have access to…

Belonging to a professional organization can boost your brokerage's credibility and give you access to valuable risk management resources.

Professional organizations also make it easy for brokers and insurance agents to stay on top of new industry regulations. Compliance risk is a huge concern for agents and brokers, and with the right amount of vigilance, you can mostly mitigate that exposure.

Save Money on Your Quarterly Tax Returns

As you know, independent contractors are responsible for keeping tabs on their taxes throughout the year. Regular employees don't need to worry about this because their employers withhold their taxes. By contrast, as a self-employed broker, you must pay your own estimated taxes each quarter.

Independent brokers must pay quarterly estimated taxes. Failure to do so may result in a fine when you file your annual tax return.

If you'd like to learn more about quarterly taxes, read IRS.gov's Estimated Taxes page. In the meantime, we'll give you the skinny:

  • The IRS prefers that you file four equal returns each year.
  • Unless you report at least 90 percent of your total income by the end of the year, you will incur a penalty.

Keep in mind that independent contractors are taxed at a higher rate than regular employees in the same tax bracket. Why? Independent contractors are required to pay a self-employment tax that covers…

  • Social Security taxes.
  • Medicare taxes.

If you were an employee, your employer would pay half of your Social Security and Medicare taxes. But because you are technically your own boss, you are required to pay the full amount yourself. To learn more about this topic, read the Self-Employment Tax page on the IRS website.

Being an independent contractor has its perks, despite having more tax obligations to juggle. For starters, you have more opportunities to take business deductions, which reduce your taxable income. Your tax advisor can help ensure you're taking all the deductions you're due. Before you pay your tax pro a visit, here are a few things you can do to make the most of your meeting:

The IRS recommends keeping your original receipts for three to seven years.

  • Keep detailed, organized records. Every time you make a business transaction, keep your receipt and scan it once you get back to the office. Business expenses can include anything you buy that helps you run your business. This may include new equipment or a lunch meeting with a client. You can also deduct your business-related mileage (even a trip from your office to the bank counts!). Simply track your route on a site like GoogleMaps and record your mileage. Your tax advisor can translate your miles into a deduction amount.
  • Keep your receipts. Just because you have all your receipts recorded on your computer doesn't mean you can throw out the original copies. If you are audited, you'll need to have those original receipts on hand. The IRS recommends that different records be saved for different lengths of time — anywhere from three to seven years. To learn more, check out the IRS's article, "How Long Should I Keep Records?"
  • Don't overlook deductions. There may come a time when you're not sure whether an expense counts as a business deduction. If you find yourself in this situation, don't throw the receipt away. Keep a separate record of "iffy" transactions, and bring them with you when you meet your tax professional. They will be able to tell you if the expense is deductible.
  • Save for retirement. Self-employed professionals can often receive a Savers Credit when they contribute to an eligible retirement fund. However, not all retirement funds will qualify. Read the IRS's Get Credit for Your Retirement Savings Contributions page to learn more.

And if you have more questions about taxes for independent contractors, visit the IRS's Self-Employed Individuals Tax Center.

Next: Part 2: When Should Stock Brokers and Insurance Agents Update Their Business Insurance Policies?

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