Austin Texas Captive Insurance
Sign Up for the Captivating Thinking Newsletter
Game-Changing Financial Vehicle for Business Owners and CFOs
CIC Services, LLC has helped businesses and business owners in Austin, TX avoid being under-insured without the additional “sunk cost” of paying insurance premiums to a third party insurer and having nothing to show for it. We have done this by helping business owners own their own insurance company, known as a captive insurance company. Hence, the premiums paid to the captive to insure risks faced by the business are not “sunk costs.” They are insurance reserves and profits owned by the captive owner.
Furthermore, captive insurance companies allow owners to customize their insurance coverage. Said another way, policies can be written to perfectly address the businesses identified risks as well as gaps. And, policies can be written without the various exclusions and caveats that are contained in most third party commercial insurance policies.
Also, captive insurance companies are real insurance companies, and they operate like real insurance companies. As such, their reserves set aside to pay claims are not taxed. Small insurance companies, defined as receiving annual premiums of $2.4 million or less, may make an 831 (b) tax election and are not taxed on their reserves for claims or their underwriting profits. Hence a business or business owner is able to formally insure risk via a captive insurance company, pay $2.4 million in premiums annually to the captive insurance company, and the $2.4 million paid to the captive is not taxable.
Assuming a combined tax rate of 50% (federal and state), a business or business owner can essentially double the funds set aside in a captive insurance company versus the funds set aside in a “rainy day fund” to pay for losses incurred by the business.
What Is A Captive Insurance Company?
A captive is a unique but REAL casualty insurance company. It includes its own corporation, insurance license, reserves, policies, policyholders, and claims. It is a formal way for business owners to self-insure, and captives are generally formed to insure the risks of owners and related or affiliated third parties.
There are many risks that all businesses regularly face and informally self-insure. It’s worth noting that businesses informally self-insure with after tax dollars, meaning that a businesses’ “rainy day fund” is usually comprised of retained earnings that have already been taxed. With a captive in place, businesses can formally insure risks not normally insured by third party insurers.