What is an 831(b) Captive?

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Your Insurance Company

A captive insurance company is a form of alternative risk management. It is a privately owned, closely-held, property and casualty insurance company organized by the owner or partners of a successful operating company or family of companies. The captive puts the management of business risk in the hands of the business owner rather than an unaffiliated outside insurance company.

Replacement or Supplemental Coverage

Captive insurance companies are utilized to replace and/or supplement the existing risk coverage of the operating company. The captive can be used to cover gaps, exclusions and deductibles in existing insurance policies. It can also issue policies for surplus and custom-tailored coverages that are often too costly or not readily available through standard commercial insurance providers.

Issue Policies and Service Claims

Under a typical captive insurance arrangement the operating company pays premiums to, or purchases insurance from the captive. The captive insurance company issues policies insuring the risks of the operating company, and services claims filed by the policy holder.

Premiums Are Deductible

Insurance premiums paid by the operating company to the properly structured captive insurance company are deductible for income tax purposes as ordinary and necessary business expenses under U.S. Tax Code section 162(a)

Section 831(b) Captives

Under section 831(b) of the Tax Code, qualifying small insurance companies with no more than $1.2 million in annual premium may elect to be taxed on investment income only.

Your War Chest

Underwriting income may not be taxed in a properly formed section 831(b) captive insurance company. There is, therefore, significant opportunity for your captive's reserves and surplus to rapidly accumulate and become a sizeable war chest. This war chest is available to protect your business against the risks that may otherwise seriously impair your company's ability to operate successfully over the long term.


“Your business has uninsured risk. You owe it to yourself to examine the advantages of addressing that risk through your own insurance company!”