What if there was a tool that existed for businesses where they could reduce insurance premium payments, while improving their risk management policies, increase cash flow, and where certain profits do NOT elicit a taxable event?
Would you believe such a tool exists? And, if it did exist, why wouldn’t you use this tool?
Seldom heard of, and seldom used, businesses can create a captive insurance company that will offer all of the benefits described above.
But, what exactly is a captive insurance company?
A captive insurance company (captive) is a small property and casualty insurance company formed by a business owner(s) to offer insurance for their business and other closely held businesses. The policies underwritten by the captive aim to supplement or replace existing insurance coverage.
The IRS has set the parameters wherein compliant captive companies can operate. Part of the parameters include IRS guidance, which includes certain advantages where underwriting profits are tax exempt for the captive.
Not only for tax advantages, but because of statutory laws and state jurisdictions that companies operate, make it an ideal time for closely held companies to create a captive.
Below are Four Advantages of Owning a Captive Insurance Company:
- Insure Hidden Risks: without realizing it, many businesses owners self-insure a lot of risk. By owning a captive insurance company: self-insured, un-insured, and under-insured risks can convert to tax-deductive premiums paid to your captive.
- Reduce Premium Costs: the large premiums payments you pay to your commercial insurer pays for their litigation costs, their marketing costs, their overheads costs, and their profits. By supplementing your current commercial insurance, or replacing your insurance coverage with your captive you can reduce the total cost of risk.
- Wealth Accumulation & Asset Protection: captives are one of the best asset protection tools available. If you have your captive setup/designed appropriately, assets often are credit protected.
- Own Your Own Financial Institution: owning a captive insurance company allows you to earn tax free profits from underwriting profits which you can use to make loans and make investment with your own capital.
Simply, your captive insurance company will provide better coverage and better service to your operating company and other closely held business than a commercial insurer ever would.
But, having a reputable firm design your captive insurance can serve purposeful, as explained earlier it can afford credit risk protection through proper design. A company like COX Capital Group, Inc. will work with your legal and tax advisors, and will coordinate all the activities needed to form the captive, and to ensure that the company is compliant with IRS parameters and meets all requirements of a captive.
Despite all of the intricacies of forming a captive, below illustrates the broad strokes of how a captive insurance company can benefit your business(s), while providing you with another profit center.