"Agency fee" for business and personal insurance policies

[Ian Pilcher]

I recently changed insurers (and insurance agent) for 2 policies. One
of the policies is a "landlord" homeowners policy on a rental property;
the other policy is a personal auto policy. The landlord policy is a
Schedule E expense; the auto policy premium is obviously not deductible.

I just discovered today that a portion of the premium that I was quoted
for the landlord policy is actually an "agency fee." According to the
agent, "It is just a one time fee regardless of how many policies you
have with us or if we re-shop you at a later date for any reason."

My current thinking is to pro-rate the fee based on the annual premiums
(premia?) of the two policies. Does that sound like the correct tax
treatment?

--
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Ian Pilcher arequ...@gmail.com
-------- "I grew up before Mark Zuckerberg invented friendship" --------
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[Arthur Rubin]

On Friday, May 19, 2017 at 4:12:03 PM UTC-7, Ian Pilcher wrote:
> I recently changed insurers (and insurance agent) for 2 policies. One
> of the policies is a "landlord" homeowners policy on a rental property;
> the other policy is a personal auto policy. The landlord policy is a
> Schedule E expense; the auto policy premium is obviously not deductible.
>
> I just discovered today that a portion of the premium that I was quoted
> for the landlord policy is actually an "agency fee." According to the
> agent, "It is just a one time fee regardless of how many policies you
> have with us or if we re-shop you at a later date for any reason."
>
> My current thinking is to pro-rate the fee based on the annual premiums
> (premia?) of the two policies. Does that sound like the correct tax
> treatment?

It's "premiums"....

It seems a reasonable treatment, but consider the hypothetical where there ends up being no insurance (due to a processing error), and the amount of premium refunded does not match the amount paid; so you have a net payment of 1 cent for business purposes, -1 cent for personal purposes, and $50 for the agency fee.

I think the allocation should be based on gross insurance premiums allocated to the various policies, not net. It doesn't affect your circumstances (this year), but it's something to keep in mind.

--
Arthur Rubin, CRTP, AFSP
Brea, CA