Are Captive Insurance Companies Right For Your Business?
Over the last few decades, large corporations have enjoyed the many benefits of operating their own captive insurance companies. Many of these “captives” are created to provide insured coverage where commercial insurance was previously unavailable or are priced too high. Recently, many closely held businesses have also learned that the captive insurance entities can provide significant benefits for their companies.
A well structured, IRS compliant and properly managed captive can provide the following benefits:
- Reduction in insurance premiums presently paid by the operating company by accessing the lower-cost reinsurance market;
- The ability to insure risks that may not be insurable through other means.
- Asset protection from the claims of business and personal creditors;
- Tax deductions for the parent company for the insurance premiums paid to the captive.
What is a Captive Insurance Company?
A Captive insurance company is one that insures the property and casualty risks of its parent company. A Captive arrangement may be ideal for businesses looking to better manage their insurance needs, including cost, coverage, and service.
Who should consider a Captive?
- Profitable businesses with sufficient cash flow.
- Businesses with substantial and insurable risks.
- Businesses whose needs are not being met by the commercial insurance market.
Advantages of Captive Establishment
- Enhanced risk management: Captives can insure risks that may not be available on the commercial market or are too expensive.
- Cost Saving/Profit Participation: Cost of insurance may be lower because premiums to a commercial insurer include profit margins and operating expenses.
- If the Captive meets the definition of an insurance company, premiums paid to Captive by parent company may be deductible when paid.
The Role of Business Planning Group and Your Captive Insurance Company?
- Business Planning Group will you help purchase the appropriate insurance and support the ongoing management of these products on behalf of the shareholders of the Captive Insurance company.
- Business Planning Group can assist in identifying the appropriate application of Captive Insurance companies.
- Business Planning Group can assist in choosing the right domicile and establishing the Captive and the ongoing administration of the company.