Accounting and tax aspects of risk financing techniques
Every organization is faced with the possibility of a financial loss due to perils such as fire, tort liability, or employee injury. Despite a degree of preparedness, there will be impact because funds will be diverted that could have been invested in ongoing operations or new capital. This article first analyzes risk financing programs available to risk managers to fund recovery from accidental losses. It then addresses how tax deductibility treatment may influence the selection of the optimal program. Finally, it draws conclusions about how a risk financing program can help to maximize after tax cash flow.