The Positives of Captive Insurance

Captive coverage is something that has been practiced by businesses for years. The industry was first created so that businesses could cover themselves against things that they couldn’t find coverage for before. It works by the company basically forming their own insurance provider that operated offshore. This both acted as a way to deal with taxes and a way to manage risk.

As time went on, a larger number of smaller businesses started adopting the practice, even combining with other small companies to form these subsidiaries. The benefits for these smaller companies are the same as they are with larger ones, but just on a smaller scale. Many of these companies are privately owned. What are the benefits for companies getting into captive coverage?

The Benefits of Captive

  1. Tax Benefits – The parent company that provides the insurance can get some tax deductions that other companies can’t get. They basically get a deduction of any premium that they have to pay. There are some other tax benefits as well for company shareholders and estate tax savings.
  2. Different Styles – There are many different kinds of businesses. Because of this, there has to be multiple different kinds of captive Insurance parent companies to fulfill their needs. This means each company can find the perfect match for them, especially as the market grows and adapts to what is going on around it.

What Kind of Companies Can use Captive Coverage

How can a company know if a captive parent company is right for them? First of all, this type of coverage is usually only appropriate for company’s that have profits and are looking to increase the tax deductions. While the companies can be smaller, they usually need at least $500k in profits annually to qualify for the coverage. The coverage is also important for any company that is looking to increase the protection of its assets.

Forming a captive company is not a quick and easy process. A lot of research needs to be done to gather the stats and information needed to apply for an insurance license. Risk needs to be assessed correctly to determine what the appropriate coverage level is. Don’t forget, the captive must act exactly like a traditional insurance company to qualify for all of the tax benefits that come with it. It is good to hire a company that has experience in the industry to run it in order to stay and remain compliant.