4 Benefits of Forming of Captive Insurance Company

You can’t make money in business without taking some kind of risk but that doesn’t mean you shouldn’t mitigate that risk as much as possible. This is why captive insurance companies exist, to assess the risks versus the benefits for each organization being covered. A captive insurance company is one that is created by the owners of a company to protect their own assets, meaning it is essentially self-insurance where the owner of hte company and the insurer are the same person.

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They aren’t the most popular form of insurance on the market, but they are used by just about every Fortune 500 company in the world and are increasingly being used by smaller companies as they realize the benefits of the coverage. This is one of the highest forms of risk management and it requires an extremely informed business owner in order to successful. Here are some of the most popular benefits of using captive insurance services.

The Benefits of Captive Insurance

  1. Profit from Underwriting – The underwriting profit from owning a captive don’t come in traditional profits, but actually from tax deductions from payments. The other benefit comes with the reduction in financial losses because the captive reduces the risk.
  2. Income from Investment – When you own a captive, you can earn money off of loses as well. There are two different ways to get returns. Some get a guaranteed rate and some take a little more risk to increase their ceiling through off-balance sheet risk.
  3. Control – It might seem a little weird to be discussing control when talking about an insurance company, but that is the exact purpose of forming a captive insurance company. It takes some of the power away from the traditional insurance market and puts it back into the hands of the homeowner. With traditional insurance, the premiums reset each year, but with captive insurance, the control of the owner increases as their assets gain more value.
  4. Tax Advantages – All insurance companies experience some kind of tax benefit, but captives do to a much higher degree and have a particular tax benefit that other companies don’t. The benefits are especially good compared to non-insurance companies. Captive insurance companies don’t really make money in the traditional way. Their value lies in their promise to pay for other’s losses, which cannot be taxed in the way that traditional income can.