Cary Captive Insurance
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CIC Services, LLC has helped businesses and business owners in Cary, NC 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 $1.2 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 $1.2 million in premiums annually to the captive insurance company, and the $1.2 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 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 risk, and captives are generally formed to insure primarily though not exclusively the risks of one or more businesses owned by the same or related parties.
How Does a Captive Insurance Company Work?
A captive primarily insures its parent company or related companies. Hence, the parent company is able to purchase insurance from its captive, and it can insure risks that third party insurers will not insure or risks where third party insurance cost is unaffordable.
Premiums are paid from the parent company to the captive with pre-tax dollars. The captive can invest its assets mostly as its owners choose (some domiciles have restrictions).
Please call or e-mail us to discuss any questions you may have about risk management and captive insurance companies.