If you’re considering working with a captive insurance management firm, what should you consider? There’s an old adage’ in the captive insurance industry: “If you’ve seen one captive manager, you’ve seen one captive manager.” All captive management firms are not alike! Because captive insurance is so misunderstood, it’s difficult to know what to look for in a good captive management firm. But if you select the wrong captive management firm, you may find yourself in hot water with the IRS, or domicile regulators! Following is list of eight questions that can help you determine just how qualified a captive manager is:
1. How much experience does the captive manager have? Does the captive manager understand relevant IRS court cases and revenue rulings, and adapted their best practices to conform to appropriate standards?
2. Is the captive manager affiliated with any professional captive insurance associations? If so, are they attending conferences and staying abreast of current industry standards?
3. Has the captive manager had any captive insurance clients audited by the IRS? Is there a pattern of frequent IRS client audits, and how have those clients fared in those audits?
4. Does the captive manager do a thorough feasibility study, using an independent, experienced insurance actuary to determine coverages and premiums? Using an independent actuary means that the manager is striving to achieve the highest levels of legitimacy for the captive insurance companies.
5. Does the captive manager spend time educating the client, and the client’s team of professional advisors regarding best practices and industry standards? The manager should work closely with your tax advisor, your financial advisor and your legal advisor to ensure everyone is educated regarding appropriate captive strategies for tax, investments, and business and estate planning.
6. Does the captive manager employ a legitimate risk distribution strategy? Each captive manager should have a strategy for their clients to satisfy the IRS-required risk distribution ruling.
7. Are the captive management fees appropriate? Are there any hidden fees? You should ALWAYS ask what the services are, for the fees you are quoted. Many managers provide an all-inclusive, turnkey service, while other managers provide an ala carte approach, with fees added on for the same services being offered by the turnkey management firms.
8. Can the captive manager provide references; not just from current clients, but from CPAs, financial advisors or attorneys they’ve worked with? You should ALWAYS ask for references from current clients and professional advisors, to ensure the manager has a stellar reputation!
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