Owning Two Businesses Is Better Than Owning One – Part Two
Last week, we described how businesses owners often increase success, profitability and asset protection by starting or acquiring a second business that serves their primary business. Often described as vertical integration, this approach is often effective because a supplier or service provider is already making a profit serving the parent company. A simple, well proven path for many businesses to achieve vertical integration is to start and own an insurance company, specifically an 831 (b) captive insurance company.
Beyond Vertical Integration – Second Companies Can Expand Opportunities
Last week, we considered a successful business owner that chose to stop leasing a facility in favor of purchasing a facility inside a new company owned by the business owner. The business owner can now earn a profit on two companies, profitably rent out space to other businesses, and depreciate the real estate asset in the second business to reduce taxable income as well.
Last week, we also considered a manufacturer that started a business in its supply chain. That manufacturer was able to earn profits on both businesses and gain better control of risk…specifically, the risk of a key supplier folding. With the addition of the second business, the business owner is also in a position to expand profits by serving as a supplier to other businesses.
The same benefit – specifically the opportunity to expand and boost profits – is available to owners of captive insurance companies as well.
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 sophisticated way to self-insure and is generally formed to insure the risks of its owners and related or affiliated third parties.
How Are Two Companies Really Better Than One (Part Two)?
Captive Insurance Companies participate in risk pools to spread risk. And, Captives are able to write insurance policies for other businesses. Many owners of Captive Insurance Companies enjoy profits from their Captives as they insure other businesses. This is, in effect, another profit or wealth accumulation stream that Captive ownership makes possible.
Isn’t this a Recipe for Disaster… What if a Company I Insure Has a Claim?
CIC Services structures its captives for profitable growth (just like any other insurance company does). The Captive receives premiums and builds reserves. Claims against the Captive are capped to reduce impact on reserves. And importantly, as licensed insurance companies, Captives have access to the reinsurance market. This allows Captives to purchase insurance above and beyond its caps at very favorable prices – prices not available to businesses or individuals. For these reasons, two companies are better than one. A Captive is often able to generate additional profit and wealth accumulation for its owner(s).
The Window To Start Another Successful Business (By Forming A Captive) and Pay Premiums In 2012 Is Rapidly Closing
It takes 60 to 90 days to form a captive insurance company. Call us to discuss whether or not a captive insurance company or additional captive insurance company is the right move for your business portfolio.
Sincerely,
Tom King
Phone – 865- 386-4920
E-Mail – Tom@CICServicesLLC.com
Web – www.CICServicesLLC.com