Cambridge Captive Insurance
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Game-Changing Financial Vehicle for Business Owners and CFOs
CIC Services LLC is a Captive Management firm serving Cambridge, Massachusetts that helps businesses and business owners set-up and operate their own insurance company. This enables businesses to benefit from a more robust risk management approach. Companies with a captive insurance company in place can now formally insure risks that may have previously been uninsured.
Over time, the overall (or aggregate) wealth of one or more companies with a captive insurance company is almost always higher – significantly higher – than the overall wealth of companies without a captive insurance company. This occurs for two primary reasons. First, the parent company takes an expense as it pays its insurance premium to its captive. This lowers the parent companies taxable income. And, the captive does not pay taxes on the premium it collects (up to $2.4 million annually). Second, the captive is able to earn a return on its reserve pool (or assets). And, the captives asset pool has been amassed with pre-tax dollars, enabling asset growth on a larger starting base.
A captive provides many benefits to its parent company or business owner including risk mitigation, asset protection, security from creditors and increased profits. A captive primarily insures its parent company or related companies. Hence, the parent company is able to purchase insurance from its captive. In the early years of owning a captive, a business can insure risks that third party insurers will not insure or risks where the cost to insure with a third party is prohibitive.
Adverse events are going to occur whether or not a business has a captive insurance company in place. Businesses with a captive in place have a much larger pool of funds to address adverse events (typically 80% to 100% more) because captive assets are comprised of pre-tax dollars. Hence, the captive effectively acts as a legal tax shelter for the premiums received from its insured.
Premiums are paid from the parent company to the captive with pre-tax dollars, and accumulate tax-free as reserves of the captive (up to $2.4 million annually). Captive reserves can be translated into virtually any other type of asset (some domiciles have restrictions). Hence premiums paid to the captive are in effect a “transfer of wealth” and are protected from the parent company’s creditors and lawsuits. Over time, a well- structured captive can often double a business owner’s wealth.