6 Reasons To Form A Captive
6 Reasons to Form a Captive
What is a Captive Insurance Company?
A captive insurance company is a privately-owned, for-profit, tax-exempt insurance company, designed to protect an operating business or professional practice. Approximately ninety percent of the Fortune 1000 have formed captives. Now successful small and medium sized businesses are discovering captive benefits.
In November 2009, Financial Planning Magazine states that “Forming captives may be one of the best risk management and wealth planning tools available to business owners.” are an estimated 6,000+ captives operating worldwide today, with most associated with U.S. operations.
What are some reasons to be a Captive?
Reason 3 - Reduced insurance cost: Over the past several years, many businesses saw double digit increases in their conventional insurance premiums even though their losses remained virtually unchanged. Forming a captive allows them to continue charging themselves a (tax-deductible) premium equal to their historical loss experience.
Reason 5 - Profit center creation: Closely-held businesses can achieve financial benefits resulting from the buildup of monies in the captive, in the case of favorable loss experience, which can then be distributed to the captive’s owners in a tax efficient manner.
Reason 6 - Improve cash flow: Captives provide efficient cash flow for the business as premiums are tax deductible to the operating company and tax exempt to the captive. Additionally, a portion of the premiums can be loaned back to the operating business.