Many individuals who are interested in protecting their business assets investigate forming a captive insurance company, since these can provide many benefits to their parent company, especially when they qualify to file under section 831b captive code of the U.S. taxation code. These captive insurance companies are established with the specific objective of insuring risks emanating from their company, or parent company, but they often insure their customers as well.
The term "captive insurance company" was reportedly first used by Frederic M. Reiss back in the 1950's when he was working in his private law firm to protect a mining company and its private mines, which were referred to as captive mines by the owners. From then on, every time a policyholder owns the company that insures it, that company is known as a captive insurance company.
Interestingly, this does not limit the function of the captive insurance company, since it can continue to insure other companies as well, which permits it to continue to grow and produce profits as it protects its client's interests. There are several ways that this type of system can be organized, and the most common ones are listed below.
The easiest way to organize this type of system is so that the policyholder pays their insurance premiums directly to the captive. All essential business risks, including certain tax and insurance benefits, are covered under this arrangement.
A second type uses a larger insurance company to underwrite the insurance to the business, and then reinsures the risks to the captive with the objective of providing additional protection. This is often used with companies that have workers' compensation.
A third arrangement is designed to protect companies with large general liability deductibles, (like workers' compensation and similar insurance policies), by allowing them to pay tax-deductible premiums to the captive while paying some premiums to a larger insurance company to cover any major insurance risks. The benefits of this kind of organizational arrangement could include shielding assets, increasing tax deductions, and managing major risks.
A group captive (which is when various businesses in the same industry, an association, or a franchise each pay insurance premiums to the group captive that in turn pools the premiums and losses) is the last kind of arrangement. Since each of these members is typically part owner of the captive, this guarantees that everyone has an equal share of the proceeds and savings.
This summery explained how a small captive insurance company can save its parent company and other clients' money. If you are thinking about using a Delaware captive insurance company, please talk to your tax advisor to see if using a company that uses the 831b captive election is right for you. There may be some advantages or disadvantages with different providers that use 831b, over ones that use the default 831a tax treatment, and your tax advisor can explain exactly how it all works.
The term "captive insurance company" was reportedly first used by Frederic M. Reiss back in the 1950's when he was working in his private law firm to protect a mining company and its private mines, which were referred to as captive mines by the owners. From then on, every time a policyholder owns the company that insures it, that company is known as a captive insurance company.
Interestingly, this does not limit the function of the captive insurance company, since it can continue to insure other companies as well, which permits it to continue to grow and produce profits as it protects its client's interests. There are several ways that this type of system can be organized, and the most common ones are listed below.
The easiest way to organize this type of system is so that the policyholder pays their insurance premiums directly to the captive. All essential business risks, including certain tax and insurance benefits, are covered under this arrangement.
A second type uses a larger insurance company to underwrite the insurance to the business, and then reinsures the risks to the captive with the objective of providing additional protection. This is often used with companies that have workers' compensation.
A third arrangement is designed to protect companies with large general liability deductibles, (like workers' compensation and similar insurance policies), by allowing them to pay tax-deductible premiums to the captive while paying some premiums to a larger insurance company to cover any major insurance risks. The benefits of this kind of organizational arrangement could include shielding assets, increasing tax deductions, and managing major risks.
A group captive (which is when various businesses in the same industry, an association, or a franchise each pay insurance premiums to the group captive that in turn pools the premiums and losses) is the last kind of arrangement. Since each of these members is typically part owner of the captive, this guarantees that everyone has an equal share of the proceeds and savings.
This summery explained how a small captive insurance company can save its parent company and other clients' money. If you are thinking about using a Delaware captive insurance company, please talk to your tax advisor to see if using a company that uses the 831b captive election is right for you. There may be some advantages or disadvantages with different providers that use 831b, over ones that use the default 831a tax treatment, and your tax advisor can explain exactly how it all works.
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These are just some of the benefits that 831b captive insurance companies may provide their clients and other policyholders. To find out more information about these companies and services, please go to 831b captive or 831b captive insurance.
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