Understanding Wealth® Blog

Forming and Benefitting from a Captive Insurance Company

Captive insurance companies (captives) are established to insure enterprise risk in a cost effective manner that may not be readily available from traditional insurance carriers.

Creating and owning a captive insurance company(ies) brings many benefits to your business:

  • Lowers Insurance Costs: This is achieved through no profit loading, elimination or reduction of broker commissions and lower administration costs versus outside vendors.
  • Improved Cash Flow: Commercial insurers rely on investment and underwriting profit to improve cash flow. Premiums are typically paid in advance while claims are paid out over a longer period of time. With your captive insurance company, premiums and investment income are retained within the captives. Captives can provide a flexible premium payment plan thereby offering a direct cash flow advantage to the insured organization. Cash for unpaid claims create cash surplus inside the captive insurance company.
  • Risk Retention: With a captive insurance company, your firm can manage its own risk by increasing your commercially purchased deductible levels and insuring the difference through your captive(s).
  • Risk Management: Captives can act as a focus for risk management and risk containment activities of its parent organization.
  • Access to the Reinsurance Market: Captives can access the reinsurance market which operates on lower cost structure than a direct commercial insurer.
  • Control: Control of underwriting, premium rates, and forms, as well as control of claim settlements and captive investment portfolio.
  • Flexibility: Captives can have specifically tailored wordings in the structure of the policies.
  • Coverage Provisions: Captives can provide risk coverage to subsidiaries and members that may not be readily available in the open market.
  • Tax Advantages: 831(b) captive insurance companies are not taxed on annual premiums up to $2.2 million in annual premiums.

Captives versus Retail Insurance Carriers
A captive insurance company is one that insures the enterprise risks of its parent company(ies). Here are a few of the compelling reasons why you may want your own captive(s) to cover enterprise risks of your company:

Business Planning Group has already helped dozens of Utah firms to establish their own captive insurance companies and we look forward to discussing how a captive insurance company may benefit you and your organization.

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