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3 Reasons to Consider Forming a Captive Insurance Company

Sep 19, 2019
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Insuring commerce is big business. Many people are unaware of the myriad complex ways they can go about insuring a business. Captive insurance can take many forms from group captives to pure captives. Regardless of the structure, captives are an innovative approach to self-insuring businesses. Here are three reasons to consider forming a captive insurance company.

Tax Advantages

A primary reason many choose to form captives is the potential tax advantage. In most cases premiums paid to the captive are tax deductible. Often, any profits made by the captive are not considered taxable income.

Special tax rules also exist around how captive insurance companies deduct and report losses.

Risk Management

Forming a captive gives a business considerable control over its risk management. A company can form a captive to cover very specific risks associated with their business or industry. The captive can often provide greater insurance coverage at a lower cost.

Under this insurance structure, a company can fund losses with investment income. There is also an enhanced ability to control claims.

Cost Reductions

There can be significant insurance cost reductions by forming a captive. When a business chooses to self-insure, it removes the middleman. A part of all commercial insurance premiums goes to broker commissions, administration costs and marketing budgets.

A captive insurance company removes those expenses. Outside the event of covering catastrophic loss from an insured event, the savings experienced by a business can be immense. Operating costs are reduced.

Captive insurance companies are a fascinating alternative to traditional third-party insurance coverage. The increased control over risk management and its associated cost should invite any business to consider forming a captive. This compelling business strategy is not as complicated to execute as it once was due to favorable changes in the way these insurance entities are created and managed.

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