Why Own a Captive Insurance Company
December 4, 2024
“Lower costs & gain control.”
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A captive is defined as an insurance company established in an offshore jurisdiction, created and controlled by either a parent company or professional association through which their own risk is insured. Those insured risks are frequently re-insured through a large multinational carrier.
The cost of insurance represents a considerable expense for most businesses. In recent years, premiums have skyrocketed leading many professionals to explore creative cost reduction strategies. One imaginative – yet proven – strategy is the use of wholly-owned subsidiaries to meet insurance needs which can control or even cut expenditures. Captives can be established to self-insure part or all of property loss, product liability, work compensation, malpractice and virtually any other coverage. Consequently, the driving force behind the move to offshore captive insurance extends virtually across all industries including, but not limited to: medical malpractice, workers compensation, manufacturing, financial, energy-related, and real estate developers, just to name a few. Over 350 of the Fortune 500 companies in the United States have insurance captives. As a result, Captive Insurance Companies have become a growing and significant sector of the global insurance industry.
Benefits:
2. In very specific cases, premiums paid to a captive insurance company may be deductible as a business expense for tax purposes according to the Internal Revenue Service. It is important to note that the IRS has established very strict guidelines to qualify for tax benefits and the use of a professional is critical. The rule of thumb is that the insurance company will need to be adequately capitalized and offer sufficient third party (non-related) insurance to qualify.
3. Insurance can be obtained through the international reinsurance market at a more favorable premium with higher limits of coverage.
4. Investment returns can be obtained directly on its invested capital.
