Since establishing a small insurance company that qualifies to file taxes under section 831b captive code of the U.S. taxation code can benefit a parent company, many individuals who are interested in protecting their companies are investigating this option. These captive insurance companies are established with the specific goal of insuring risks emanating from their company, or parent company, but they often insure their customers as well.
This type of insurance company was reportedly born in the 1950's, when Frederic Reiss was figuring out a way to protect a mining company and its private mines, which the owners referred to as captive mines. From that point on, whenever a policyholder owned an insurance company they were referred to as a captive insurance company, since it was under the control of 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.
The simplest way to organize this type of system is so that the policyholder pays their insurance premiums directly to the captive. This covers all a business's basic financial risks, like insurance benefits and certain taxes.
In a second arrangement, a large insurance company is used to underwrite the insurance to a business, and afterwards reinsures some, or all, of the risks (like premiums) to the captive. This is generally used with companies that have worker's compensation risks.
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 deductable premiums for smaller risks to the captive. The benefits of this kind of organizational arrangement could include shielding assets, more tax deductions, and managing major risks.
A group captive (which is when several businesses in the same industry, an association, or a franchise each pay insurance premiums to the group captive that in turn pools the premiums and losses) is the last kind of arrangement. That way each gets an equal portion of the premiums, savings, and losses, since they are generally part owners of the captive.
So, as you see, a small insurance company can provide substantial benefits to its clients and their companies. Before deciding to use a Delaware captive, be sure to talk to tax advisor to make sure that whether filing under a section 831a or 831b captive tax code would be better for the captive you are considering setting up. There may be certain advantages or disadvantages with different providers that use 831b, over ones that use the default 831a tax treatment, and your tax advisor can explain exactly how it all works.
This type of insurance company was reportedly born in the 1950's, when Frederic Reiss was figuring out a way to protect a mining company and its private mines, which the owners referred to as captive mines. From that point on, whenever a policyholder owned an insurance company they were referred to as a captive insurance company, since it was under the control of 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.
The simplest way to organize this type of system is so that the policyholder pays their insurance premiums directly to the captive. This covers all a business's basic financial risks, like insurance benefits and certain taxes.
In a second arrangement, a large insurance company is used to underwrite the insurance to a business, and afterwards reinsures some, or all, of the risks (like premiums) to the captive. This is generally used with companies that have worker's compensation risks.
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 deductable premiums for smaller risks to the captive. The benefits of this kind of organizational arrangement could include shielding assets, more tax deductions, and managing major risks.
A group captive (which is when several businesses in the same industry, an association, or a franchise each pay insurance premiums to the group captive that in turn pools the premiums and losses) is the last kind of arrangement. That way each gets an equal portion of the premiums, savings, and losses, since they are generally part owners of the captive.
So, as you see, a small insurance company can provide substantial benefits to its clients and their companies. Before deciding to use a Delaware captive, be sure to talk to tax advisor to make sure that whether filing under a section 831a or 831b captive tax code would be better for the captive you are considering setting up. There may be certain advantages or disadvantages with different providers that use 831b, over ones that use the default 831a tax treatment, and your tax advisor can explain exactly how it all works.
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These are just some of the benefits that 831b captive insurance companies may provide their clients and other policyholders. To learn more information about these companies and services, please go to 831b captive or 831b captive insurance.
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