Why Should I Form a Captive Insurance Company?

There are many reasons business-owners are taking a closer look at captive insurance. “Alternative Risk Management” is becoming quite the popular buzz-phrase, when it comes to protecting a business. What is it about captive insurance that is so attractive? One of the obvious answers is tax reduction. However, taxes should NEVER be the primary reason for owning a captive insurance company! There are so many other benefits from utilizing this powerful risk management tool, ranging from protecting the business to improving safety in the workplace, to creating additional streams of revenue. Let’s take a look at some of these captive insurance ownership perks…

1.      Build a war chest to protect your business. As you pay premiums into your captive insurance company, those premiums can be invested, and you can accumulate a massive war chest over a period of time to help protect your business when you need it the most. This war chest can ultimately become the difference between closing your business after a devastating event, or salvaging the business because you have that war chest covering that loss.

 2.      Customize your insurance coverages. With your own insurance company, you have the power to determine which risks you insure, what limits you want to insure for, and what you want to exclude or include in your policies. Along with your captive insurance manager and actuary, you can custom design your risk management plan to protect your business against the risks that are important to you.

 3.      Escape the clutches of the Big Insurance Companies. When you own your own insurance company, you're not beholden to the whims of a commercial insurance carrier. Whether it's defending a lawsuit, or determining the value of a claim, you make the decisions for your insurance company. You don’t have to worry about rate increases, or having your policy terminated, or dealing with undesired limitations or exclusions. You are in control!

 4.      Administer your own claims. With your own captive, you can choose which claims to file, and ensure that those claims are paid on your terms. As owner of the business, you decide whether or not to file a claim, and as owner of your own insurance company, you decide how and when those claims should be paid!

 5.      Retain key employees. You have the option, if you choose, to include certain key employees in the ownership of your captive. You can also insure your business against certain losses that may occur when you lose a key employee.

 6.      Enable your business to focus on Risk Management. One of the side benefits our clients gain, is that when your own money is on the line for future claims, you focus even more on safety and claims prevention. Most businesses, when they incorporate their own captive insurance risk management strategy, realize the serendipitous benefit of fewer workplace incidents and losses.

7.      Protect your assets. A captive insurance company is a separate entity from your business, and the reserves in your insurance company may be protected by statute to maintain the solvency of your captive. As such, the premiums paid into a captive have that extra layer of protection against creditors and lawsuits.

 8.      Reduce your spending on commercial insurance. When you self-insure, issuing your own policies to your business, you have the potential of increasing deductibles and eliminating costly or unnecessary policies from your commercial insurance provider. By taking control of your own risk management, you can better control the policies that are best placed with a commercial carrier, and insure the other risks through your captive.

 9.      Create a new business. When you form your captive as a separate business entity, you can create opportunities for producing additional investment income. Several years down the road, your captive insurance company can become a powerful, wealth-producing business entity in and of itself.

With all these benefits of owning a captive insurance company, it’s easy to see why this form of “alternative risk management” is becoming so popular! Is captive insurance a good fit for your business? Talk to a captive insurance professional and find out for yourself!

Posted on May 31, 2016 .