This form of self-insurance isn’t just for the big companies anymore.
In the ever-changing business world, captive insurance provides smaller businesses a choice that can mitigate risks and provide tax and nontax benefits.
CSG Strategic Tax Consultants provides our clients with the expertise to strategize captive insurance opportunities to best meet their long-term financial goals for the entire company.
We also bring a common-sense approach to what can be a convoluted trail of questions, frustration and ambiguity without our talented team of CPAs and engineers at the helm.
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Here’s how it works:
A non-insurance company is able to set up an insurance company to be used exclusively to insure the risk of its owners.
This allows a company to provide themselves with insurance that is reasonably priced and is advantageous when it comes to mitigating risk and offering tax advantages.
If you’re willing to put your own capital at risk, work outside the commercial insurance marketplace in the “alternative market” or “alternative risk transfer market,” and achieve your risk-financing objects, then captive insurance is the route to go.
If you’re frustrated with excessive pricing, limited or no coverage and cost-prohibitive risk financing, forming a captive insurance company will provide you with reasonable, and often profitable, alternatives.
According to the Journal of Accountancy, a well-structured and well-managed captive insurance company can provide several tax and nontax benefits to its parent company, including:
- Tax deductions for the parent company for the insurance premium paid to the captive;
- Various other tax-savings opportunities, including gift and estate tax savings for the shareholders and income tax savings for both the captive and the parent;
- Opportunities to accumulate wealth in a tax-favored vehicle;
- Distributions to captive owners at favorable income tax rates;
- Asset protections from the claims of business and personal creditors;
- Reductions in the amount of insurance premiums presently paid by the operating company;
- Access to the lower-cost reinsurance market; and
- Insuring risks that would otherwise be uninsurable.
So, which businesses benefit from the establishing a captive insurance company?
- Profitable business entities seeking substantial annual adjustable tax deductions;
- Businesses with multiple entities or those that can create multiple operating subsidiaries or affiliates;
- Businesses with $500,000 or more in sustainable operating profits;
- Businesses with requisite risk currently uninsured or underinsured;
- Business owners interested in personal wealth accumulation and/or family wealth transfer strategies;
- Businesses where owners are looking for asset protection.
Captive insurance allows a business to reap the benefits of stable pricing, improved cash flow and increased control over safety, loss control and claims.
Since they came into the marketplace, captive insurance companies are represented by the following:
“Pure Captives”: The captive insurance company insures the risks of one group of related entities;
“Association Captives”: The captive insurance company insures the risks of members of a particular association;
“Agency Captives”: The captive insurance company is owned and operated by one or more insurance agents insuring its clients’ risks;
“Sponsored Captives”: The captive insurance company is owned and controlled by unrelated parties to the insured.
Captive Insurance in the news
*Journal of Accountancy; Captives and the Management of Risk, Third Edition, by Kathryn A. Westover (2014).