Captive Insurance: The Corporate Benefits

Captive Insurance: The Corporate Benefits

For decades, big corporations globally have enjoyed a lot of business gains with their own captive insurance companies. Accordingly, most were built to provide insurance where it was unavailable or costly. Moreover, in recent years, smaller businesses have also learned and embraced the promising benefits of captive insurance, which include risk management elements as well as some attractive tax planning opportunities.
Still not going along with the ride? Well, you’re missing out on a lot of advantages. Below, we will discuss some key benefits of having captive insurance.

Creates Funds for Business Emergencies

Like other insurance companies, captives tend to accrue a significant amount of assets in surplus and reserves. While these resources back up the policies issued by the company, a share of those assets are available to the business owner in a worst-case scenario, like a need to finance the resolving of a major business catastrophe.
While there are substantial tax implications to “cashing out a captive” to shoulder an emergency not covered by a policy, the business owner has an option of doing so and can weigh the costs and benefits at the time being. Surely, getting money from a captive is easier and more convenient than applying for a business loan from a bank during dark business days.

Preserve Important Employees

In seldom occasions, business owners award a key employee or more by giving them a share in the captive as a strategy to retain them. This act will be beneficial to the business.
Providing your employees’ stocks in the captive is less troublesome than giving them an equal share in the business itself. By doing so, you can also avoid the hostile treatment given by other employees who are not given a share in the business.
woman doing her taxes

Provides Tax Benefits

The parent company can benefit from a tax deduction for the premium that is paid to the captive, given that it is properly managed and well structured. Moreover, the company is also given other opportunities to save on tax, which include savings on income tax estate for both the parent and captive companies, and on the gift tax and estate tax for the enterprise’s shareholders. In addition, with an agreeable tax-favored means, the likelihood of growing income is significantly increased. 

Choose and Have Your Own Lawyer

When you purchase insurance from a commercial provider, they will normally provide an attorney as your counsel. Ideally, they will look out for your interests even to the disadvantage of the insurance company, but the question is, will they really do this?
Imagine, one or two lawyers may be assigned a hundred cases or more in a year from a particular insurance company, with yours merely being one among a huge number. Now, do you think they will prioritize attending to your needs? With a captive, a business does not have all these problems. As the business owners control the captive, they can freely choose their captive insurance attorney or counsel to handle specific claims. They have the power to choose the best possible counsel than settling down on the cheapest legal service that the industry provides. Alternatively, they can opt to retain a good insurance defense attorney to handle most matters at a lower price.
Captive insurance is indeed helpful, as it offers multiple non-tax and tax-related advantages. However, it’s vital to note that you must consider certain factors to determine if captive insurance is suitable for your company. Therefore, do extensive research and consult a professional before finalizing your decision.