Tailor coverages and policy language that fits your unique risk management needs, not an “off the shelf” program sold by insurance carriers. Secure coverage, terms and conditions that are not available or unacceptably priced in the retail insurance markets.

With direct access to the reinsurance market, you will be insuring your risks at wholesale versus retail rates. Additionally, your premiums will be based on your own claims experience versus industry pricing and trends in the commercial market. Your costs will also be reduced by eliminating broker and agent commissions, carrier overhead and profit which can account for 35% to 45% of the premiums you’re currently paying. 

Better management and more control over the claims process, from selection of the claims management firm, and defense counsel, to participation in defense strategies. Less red tape means the entire claims process is less bureaucratic and adversarial than the traditional carrier method. These programs can offer additional estate planning tools for the family owned businesses. 

Premiums paid into a captive can be invested and the investment income accrues to the benefit of the captive owners. Underwriting profit enhances surplus and the financial strength of the captive. 

Properly structured captives receive premium which is tax deductible to the insured business. For closely held multi-generational family businesses, the captive can be owned by the children or heirs to the business. This effectively transfers wealth from the insured business, in the form of a premium payment, to the estate of the children or heirs without the imposition of estate taxes or erosion of the estate’s unified credit amount. The risk management benefits of a captive are primary; however their tax advantages are also very important. 

Captives created under IRC section 831(b) can receive up to $1.2 million in premiums each year tax free, owing taxes only on its investment income. Insurance profit distributions from an 831(b) captive are only taxed when they are actually distributed as qualified dividends, and at the dividend income tax rate, which is less than the much higher federal tax rate on ordinary income. The “tax deferral” feature of captives provides substantial tax planning options, especially if the tax rate on ordinary income, dividends and long-term capital gains change in the future. Additionally, if a captive owner retires to a state with lower or no state income tax, they can substantially reduce or even eliminate state taxes on dividends or long-term capital gains distributions received from their captive.

Through the proper use of conservative underwriting techniques and access to the lower cost reinsurance markets, your captive can build long-term capital surpluses. These surpluses allow you to increase your captive’s capacity for risk, thus further lowering your overall insurance cost basis. 

A captive has the ability to underwrite unrelated risks. If the opportunity presents itself and the unrelated risk is conservatively underwritten, the captive has the opportunity to generate an underwriting profit.