Benefits of Insuring Through a Captive
Customized coverage specific to your business:
Every successful enterprise is different and faces risks that are unique. A captive can issue policies that are crafted with your business needs in mind versus a one size fits all approach.
Improve Risk Management:
Control risk via improved claims management, underwriting flexibility and access to reinsurance markets.
Avoid the volatility of the cyclical insurance market
A stronger business model:
Businesses that have contemplated foreseeable risks and acted to protect against them stand a better chance of surviving and passing to the next generation.
Increase Cash flow and Liquidity:
When premium payments are made to a captive those payments are held to pay claims. All funds retained after claims are available for investment.
Tax savings versus informal self insurance arrangements:
Assuming that the CIC is a real, licensed insurance company that writes real, relevant insurance policies in exchange for actuarially certified or market comparable premiums, then premiums paid to the CIC are deductible to the operating business to the same extent as if they were paid to a third party insurer as opposed to after tax sinking funds.
Estate transfer opportunities:
If your CIC is owned by your children or a trust for the benefit of your children, then premiums paid to the CIC are effectively removed from your taxable estate.
Why start a CIC?
Legitimate reasons for CICs: CICs must possess a legitimate business reason to avoid being characterized as a sham by the service. Legitimate business reasons are:
- To obtain coverage where insurers are unwilling to do so
- To reduce premium payments
- To control risk
- To increase cash-flow
- To gain access to re-insurance market
- To create diversification
- To balance coverage
- Tax planning (Rev. Rul. 2001-31)