Because most ownership structures do not allow for tax-deductible premiums, business owners must decide how the premiums should be paid for their best financial advantage.

There are three common ways to pay the premiums to the insurance company: the insured pays them, the business pays them from a corporate account, or the business owners share the costs of the premiums in equal fashion.

1. Premiums paid by insured

In this method, each business principal takes responsibility for their own insurance premiums. This allows them to choose the type of coverage they want and gives them the flexibility to bundle that policy with other insurance plans they are enrolled in.

The other owners must trust that the insured will keep up with the premiums, lest the policy be dropped. Some owners may see a level of unfairness in this funding option, because premiums will vary widely given discrepancies in age and health.

2. Premiums paid by the business

One of the biggest advantages to setting up the insurance funding in this way is that it won’t affect the cashflow of the owners. It also provides a certain level of certainty in regards to whether the premiums are being paid or not.

At times, this structure may result in undesirable tax implications for the company.

3. Premiums shared among owners

For many companies, this option will be the most realistic. However, just as the older owners may view individual funding as unfair, shared funding may be seen as equally unfair by the younger, healthier partners who are now picking up more expensive premiums.

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