Captivating Thinking

In addition to gaining the ability to self-insure and to own a profitable second business, a captive insurance company can also serve as a remarkably efficient vehicle to house a deferred compensation plan for key employees and business owners.  The logic behind this approach is quite simple.  Rather than giving ownership or deferred compensation to key employees in the parent company, businesses can offer deferred compensation and ownership through a separate company – their own insurance company.

One of the benefits of owning a captive insurance company is that it provides a remarkably efficient vehicle to fund a buy-out agreement among business owners. 

Fall is upon us, and CIC Services is hard at work setting up captive insurance companies (CICs) for clients.  This season has been brisk, and, based on applications in process, we expect to grow the number of captive insurance companies under management by 20 percent.

It takes approximately two months to fully form a captive insurance company.  Many of our clients who have decided to improve their risk management by owning their own insurance company are pressing to have their CIC formed this year so that they can pay premiums to their CIC in 2013.

Insurance premiums paid to CICs in 2013 are tax deductible, and clients we are serving will reduce 2013 taxable income by $400,000 to $1.2 million.

The clock is ticking, but it’s still not too late to choose to own your own insurance company in 2013.  The CIC Services Risk Management Team has established a preliminary deadline of November 1, 2013 for the establishment of CICs that will be operational and prepared to issue policies and collect premiums in 2013.

In our weekly articles we have discussed the tremendous business benefits of owning a small insurance company – specifically a Section 831 (b)  captive insurance company.  Four very common benefits are:

1. To formally self-insure business risks with tax deductible dollars
2. To protect assets
3. To accumulate wealth and earn additional profits
4. To more effectively transfer assets  to one’s heirs

And, owning and operating a captive insurance company enables a business owner or owners to achieve all 4 benefits outlined above at the same time in one vehicle.  Captive ownership also affords many ancillary benefits, including the efficient removal of earnings from a C Corporation.

The Challenge – Retained Earnings “Trapped” in a C Corp