Contributed by Charles Davis and Lori Curtis
Captive Insurance Companies can be a valuable tool for your business. They help preserve capital and can help your business save taxes, while giving the business owner an additional measure of asset protection while providing an estate planning benefit for your heirs.
A Captive Insurance Company can be a valuable tool for businesses and business owners where there are substantial business profits or the prospect of substantial business profits and taxable income, companies where either the business or the owners have substantial exposure to liability claims, and professionals such as doctors, lawyers, architects, engineers, attorneys and law firms, accountants and accounting firms, and insurance agencies.
What is a Captive Insurance Company? It is an insurance company that insures the risks of its owner, affiliated businesses, or a group of companies. It issues policies, collects premiums, and pays claims. A Captive Insurance Company can benefit you and your business even if you already have a traditional insurance policy for your company.
Ninety percent of S&P 500 companies use captives. A captive can improve cash flow, control risk, minimize insurance costs, and accumulate wealth. Not only can a captive lower the cost of insurance, it can also insure hidden risks such as:
- Deductibles
- Construction Defects
- Operating Risks
- Directors & Officers, Executives & Officers
- Litigation Defense
- Credit Default
- Exclusions
- Disability
- Pollution & Mold
- Administrative Actions
- Product Warranty
Premiums paid to your Captive go to your company and not someone else. Additionally, the premiums are deductible by your business, but not treated as income to your Captive. So if you are an owner of a business or professional practice and you pay a premium to your own insurance company, the entity that pays the premium reduces taxable income by the premium amount (up to a certain amount), but that money is not treated by the Captive as taxable income. By using a Captive to insure legitimate risks, if there are no claims made that would be covered by the Captive policy, you can save up to $435,000 or more that would otherwise be paid in taxes, annually.
There are also numerous other benefits to forming a Captive Insurance Company. Charlie Davis is an experienced attorney in captive insurance companies. Contact him for a confidential consultation to determine whether you will benefit from a captive insurance company. The process to form a Captive Insurance Company takes time, so if you wish to form a captive and utilize its tax advantages this year, it is important to act now. Call today for an appointment.