Insuring Your Business

Wealth Management | Prager Metis | Oct 07, 2015

Captive Insurance

If your business pays over $100,000 a year in insurance premiums you should read on. This is where the concept of “Captive Insurance” comes into play.  Captive insurance companies are insurance companies established with the specific objective of covering the risks to which the business is exposed. This is another form of risk management, their responsibility is to manage, prevent, and protect the unknown risks.

The idea of captive insurance came from Frederic M. Reiss when he was creating a protection system for his first client the Youngstown Sheet & Tube Company located in Ohio during the 1950’s. Youngstown had a series of mining operations, and they were referred to as captive mines. Since Reiss’ job was to protect the practices that went on in the mines he called this form of insurance “captive insurance”.

Much has improved since the 50’s, the captive insurance companies are created within the Internal Revenue Code. Over 75% of the world’s captives are associated with the United States. Captive Insurance is becoming standard for business owners, the insurance can cover worker’s compensation, general and professional liability, director and officers’ liability, vehicle insurance, property damage, product liability, and transfer risks.

There are several benefits to having captive insurance:

  • Tax deductions for the parent company
  • Opportunity to accumulate wealth
  • Asset protection from the claims of business and personal creditors
  • Reduction in the amount of insurance premiums
  • Lower cost reinsurance market
  • If you are a business owner and having captive insurance seems like something you would want to consider, then look at the following, to see if you’re an eligible candidate:
  • Looking for asset protection.
  • Owners interested in personal wealth accumulation and/or family wealth transfer strategies.
  • Businesses with multiple entities or those that can create multiple operating subsidiaries or affiliates.

Captive Insurance is an important asset for any sized company, today, it is usually used by large corporations in the hopes to lower their insurance costs and often held in offshore tax havens. But smaller companies utilize captive insurance for the tax break. Captive insurance companies are also being used for estate planning, a captive can be owned by the family members of the parent corporation’s owners or a trust set up for the benefit of those family members. Since there is a business purpose for setting up the captive there should not be an issue filing the claim.

If you’re going to insure your health, your life, your home, why not insure your business?


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