Your CAPTIVE Plan

Captive Insurance Management

A captive insurance company is a private insurance company that is set up to insure the risks of a single parent company. It is a strategy for risk management that large corporations have employed for years. It is becoming an increasingly practical alternative for many small to mid-size businesses.

The Business of Risk

Most businesses have hidden risks in its operations.  These are the risks that are not currently being insured through a commercial insurance carrier, but are real risks to the business.  These are the kinds of risks that keep the owners of the business awake at night.

A captive insurance company can provide the business with a risk mitigation strategy and insurance coverage they need but may not be able to obtain economically through the traditional insurance market. Recognizing the exposure of non-insured or under-insured risk is just one reason captive insurance has become a strategy for many businesses.

The formation of a captive is a part of managing business risks and should include professional consulting with those having experience in captive insurance formation and management. 

A captive insurance company can issue policies with higher limits for the “other risks” within a business and can access the reinsurance market to share insurance risks for areas such as product liability, malpractice deductibles, general and professional liability, directors' and officers' liability and higher deductibles. Vehicle insurance, both property damage and third party liability of corporate vehicles can also be covered within a business captive.  Another growing area of risk within many businesses is cyber risk.  Additionally, many businesses are highly dependent on a few vendors, customers or employees and have key contracts that may be lost.

Taxes and your Favorite Uncle

In addition to extending insurance protection, captives can also offer tax advantages. Tax benefits should not be the primary reason for the establishing a captive. General business objectives must be the primary basis for establishing a captive insurance company. The business of being insured must have real property and casualty risks that can be mitigated through insurance coverage issued by the captive insurance company.  While Farrall Wealth is not a CPA or a law firm, we have extensive experience in working with these professional advisors in such matters.

Establishing a captive insurance involves insurance and risk management, regulatory and corporate legal issues, federal and state tax requirements, and accounting and financial expertise; therefore general tax information cannot be provided without more detailed information that includes all of the professional resources we work with.

For the proper client, the planning phase of the engagement could include strategic thinking for wealth preservation and wealth transfer planning.  The information provided is general in nature, and may not be relied on for any specific use. Farrall Wealth is not a law firm, accounting firm or insurance company and does not provide legal services or advice.