Did you read that headline right? Save your income. Live off your savings. This sort of thinking certainly defies conventional wisdom. However, for many professionals and business owners, this financial strategy can grow (not shrink) savings while simultaneously maintaining the same standard of living.
In our last “Captivating Thinking” article, we noted that most small and medium size businesses are under-insured. The 21st century economic, technological, political, regulatory, social and legal climate is very different than the climate businesses faced in the recent past. Simply put, businesses face far greater risks both in the spectrum of possible threats to a business and the magnitude or potential loss those threats pose. Most businesses insure common risks like theft, fire and general liability. However, there are a host of other risks that businesses face that are either specific to their industry or thrust upon them in the rapidly changing business climate.
Lawsuits are far more common in the current business climate, and lawsuits can come from both outside or inside a company. Businesses face more and more regulations, and it’s not uncommon to read a news article about a business crippled or closed down by regulators. Many businesses today also face cyber risks and threats to data security and IT systems. As if that is not enough, terrorism in the U.S. now poses a legitimate threat to businesses. And, many of these “new” risks are not covered by typical third party insurance policies. These types of coverage often require additional policies that are often very expensive.
Should Businesses Simply Buy More Third Party Insurance to Address the Myriad of Risks Facing Their Business?
Tax avoidance is perfectly legal and encouraged by the IRS,
but tax evasion is against the law.
– Internal Revenue Service Website
To what lengths should business owners and professionals go to reduce their taxes and keep more of their hard earned money? Provided they are conducting legitimate business transactions, the answer is “to the full extent the law allows.” The phrase “tax avoidance” may cause some to feel uncomfortable. But, even the IRS acknowledges that tax avoidance is perfectly legal and encouraged.
We routinely talk with prospective business owners who tell us their business would benefit greatly by owning its own insurance company, but they are concerned that legal and regulatory changes will negate their captive in the future. This is unfortunate because owning your own insurance company – specifically, a captive insurance company, is one of the most powerful financial moves a business owner can make. Captive insurance companies are particularly effective because they provide businesses and owners with: