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Captive Insurance Company Benefits - A  List of Captive Ownership Benefits, Captive Insurance Benefits, Captive Benefits, Why Own a Captive?

Here is a list of the Benefits of Owning and Operating a Captive Insurance Company:

  • Captive Insurance Cost Savings.  By creating a Captive Insurance Company you will be able to directly access wholesale reinsurance markets which will enable you to reinsure risks at wholesale versus retail rates and receive lucrative reinsurance commissions and profits. In addition, the insurance premiums which your Captive charges your existing businesses will be calculated based on their  favorable claims histories instead of less favorable industry loss cost estimates. A Captive Insurance Company will also allow you to reduce costs by eliminating broker and agent  commissions, administrative charges, and  insurer profits which account for 35% to 40% of the premiums you are currently paying to a traditional insurance company. Insurance industry experts estimate that a company with a favorable loss history can save up to 50% on its cost of business insurance with a Captive Insurance Company.

  • Captive Insurance Coverage Advantages. Your Captive can custom tailor its coverages and policy language to meet your unique risk management needs.  Your Captive will also provide better availability, stability and affordability on a wide range of commercial coverages compared to traditional commercial insurers.  These important coverage differences will be especially pronounced  when particular covers are unavailable or unacceptably priced in the commercial insurance market.

  • Captive Insurance Claims Payments. Captives tend to have a lot less red tape when it comes to handling loss claims.  Although the relationship between your Captive and its insureds will be completely "arms length,"  it will be less bureaucratic  and adversarial than a traditional insurance carrier. As a result, claims investigations, verifications, adjustments, and payments will all be made more expeditiously.

  • Captive Insurance provides you with Complete Control. You will be in complete control of your Captive. You will own all the stock of the Captive and will control all of its bank and investment accounts. Owning a Captive will also improve your control over loss costs by providing you with a vehicle and the resources to categorize, measure, and manage these costs.

  • Cash Flow Increases due to Captive Underwriting Profits and Captive Investment Income. Premiums paid into the captive can be invested to grow the financial strength of the company and increase surplus. If the captive has good claims experience it stands to generate a tremendous amount of underwriting profit for the captive owners.

  • Capacity. Through the consistent application of conservative and prudent underwriting techniques, and the judicious use of reinsurance markets, your Captive will be able to generate long term capital surpluses. These surpluses will increase your Captive's risk retention capacity.  

  • Owning a Captive Insurance Company Create a New Profit Center. Many Captives are initially started to reduce the cost of insuring the commercial property and casualty risks of businesses which are owned by the Captive's Parent Corporation, or its stockholders. However, over time a number of Captives decide to substantially increased the amount of unrelated risks they insure in an attempt to profit from a lucrative array of  unrelated risk underwriting opportunities.  After several years, related risks account for only a small percentage of the total risks which the Captives profitably  insure.

  • Owning a Captive Insurance Company will Create New Risk Financing Options.  By segregating specific risks in a Captive, you will be able to take advantage of a wide range of risk financing alternates including risk securitization programs. These financing alternatives are not available without a Captive.

  • Owning a Captive Insurance Company provides a Competitive Advantage.  A Captive can also be used as a vehicle to improve your overall competitiveness. For example, some Captive owners utilize their Captives to  attract and retain key customers, vendors, partners, franchisees, and joint venture partners by offering them insurance coverage as part of their overall business relationship.

  • A Captive Insurance Company can provide significant Tax Incentives and Benefits.  Captives which qualify for the Small Insurance Company Tax Election under IRC section 831(b) are entitled to receive up to $1.2 million each year in premiums - Tax Free!  Although potential tax savings are not a valid reason for owning and operating a Captive Insurance Company, it is none the less important to note that a properly structured Captive Insurance program can provide you and your business with significant tax benefits and savings. Please see Captive Tax Benefits and Captive Taxation for more details. 

A Comparison of Captive Insurance to Self Insurance and Traditional Insurance

 Plan Comparison  Retail Insurance  Self Insurance  Captive Insurance 
Lower Insurance Cost no yes yes
Provides Protection from Risk yes no yes
Tax Deductible Premiums yes no yes
Policy Design Flexibility no yes yes
Control Over Claims no no yes
Underwriting and Investment Income no no yes
Competitive Advantage no no yes
Tax Planning Benefits no no yes
Asset Protection Benefits no no yes
Estate Planning Benefits no no yes
Retirement Benefits no no yes

Captives are the ultimate tool for superior risk management, asset protection, estate planning, tax planning,  retirement and other financial advantages.

To learn how a Captive Insurance Company can benefit your business, call our office (201)-995-9085.

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