Many individuals who are interested in protecting their business assets investigate forming a captive insurance company, since these can offer many benefits to their parent company, especially when they qualify to file under section 831b captive code of the U.S. taxation code. In these situations, captive insurance companies can insure certain financial risks of their parent company, and can also insure those of any other clients.
The phrase "captive insurance company" was reportedly first used by Frederic M. Reiss back in the 1950's when he was working in his private law firm to protect a mining company and its private mines, which were called captive mines by the owners. Thereafter, when a policyholder owned an insurance company, the company was referred to as a captive insurance provider, because it was beholden to the policyholder.
Interestingly, this does not limit the function of the captive insurance company, since it can continue to insure other companies as well, which allows it to continue to grow and produce profits as it protects its client's interests. This kind of coverage system can be arranged in several different ways, some of which are considered below.
Having the policy holding company pay their premiums directly to the captive is the simplest way to organize the system. This covers all a business's basic financial risks, like insurance benefits and certain taxes.
To provide additional protection, a second arrangement uses a larger insurance company to underwrite the insurance to the parent company and then reinsures the risks to the captive. This system works well with businesses that provide worker's compensation.
To protect companies with larger liability deductibles, a third organizational design permits the parent company to pay a portion of their premiums to a larger insurance company to cover major insurance risks, while at the same time paying tax deduct able premiums for smaller risks to the captive. This organizational arrangement is used to increase tax deductions, protect assets, and manage major risks as effectively as possible.
A forth arrangement requires that several businesses that are in the same union, franchise, or industry pay premiums to a group captive; the captive then takes those premiums and losses and pools them. Because each group member is generally an owner in the captive, the insurance policy can be tailored precisely to their needs, and provide substantial savings.
After looking at these facts, it is easy to see how a small insurance company can benefit its parent companies and other clients. If you are thinking about using a Delaware captive insurance company, please talk to your tax advisor to see if using a company that uses the 831b captive election is right for you. That way you make sure you know all the advantages and disadvantages that could come with filing under each of the available sections of the tax code.
The phrase "captive insurance company" was reportedly first used by Frederic M. Reiss back in the 1950's when he was working in his private law firm to protect a mining company and its private mines, which were called captive mines by the owners. Thereafter, when a policyholder owned an insurance company, the company was referred to as a captive insurance provider, because it was beholden to the policyholder.
Interestingly, this does not limit the function of the captive insurance company, since it can continue to insure other companies as well, which allows it to continue to grow and produce profits as it protects its client's interests. This kind of coverage system can be arranged in several different ways, some of which are considered below.
Having the policy holding company pay their premiums directly to the captive is the simplest way to organize the system. This covers all a business's basic financial risks, like insurance benefits and certain taxes.
To provide additional protection, a second arrangement uses a larger insurance company to underwrite the insurance to the parent company and then reinsures the risks to the captive. This system works well with businesses that provide worker's compensation.
To protect companies with larger liability deductibles, a third organizational design permits the parent company to pay a portion of their premiums to a larger insurance company to cover major insurance risks, while at the same time paying tax deduct able premiums for smaller risks to the captive. This organizational arrangement is used to increase tax deductions, protect assets, and manage major risks as effectively as possible.
A forth arrangement requires that several businesses that are in the same union, franchise, or industry pay premiums to a group captive; the captive then takes those premiums and losses and pools them. Because each group member is generally an owner in the captive, the insurance policy can be tailored precisely to their needs, and provide substantial savings.
After looking at these facts, it is easy to see how a small insurance company can benefit its parent companies and other clients. If you are thinking about using a Delaware captive insurance company, please talk to your tax advisor to see if using a company that uses the 831b captive election is right for you. That way you make sure you know all the advantages and disadvantages that could come with filing under each of the available sections of the tax code.
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These are the basic types of captive insurance companies and the benefits they offer. To find out more about these businesses and benefits, you can go to 831b captive and also 831b captive insurance.
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