Self Insurance

self insuranceSelf insurance is a broad term used to describe funding that’s been set aside for future losses. Self-insurance could refer to a simple loss fund, a savings account, or even a rainy-day fund. Whether it’s choosing a high-deductible insurance policy or declining the extended warranty on a new purchase, people often make the decision to self-insure.

Many business owners self insure because of exclusions, or gaps in their commercial coverage. In general, those who opt for self insurance plans typically lean on their own, after-tax funds to cover losses, ultimately retaining risk.

Captive insurance, however, is a type of self insurance plan, whereby a business owner forms his or her own bona fide insurance company to fund losses. The insurance coverages are tailored to the needs of the business, eliminating the possibility of a claim denial. Additionally, there is a 0% Federal income tax paid on the captive’s underwriting profits under IRC 831(b) of the U.S. tax code; the captive may also provide ancillary benefits to their operating businesses, such as dividends and secured loans. Ultimately, business owners of self insured companies can unlock powerful risk coverage and improved financial efficiency.

Before engaging in any self funded insurance plan, a business owner should first have uninsured risks within their business, determined by an on-site feasibility study. For example, construction companies with General Commercial Liability coverage may contend with contractual liability exclusions. For all industries, the insurance needs of the business should always come before any financial gains obtained through self insured captive planning.

The tax savings resulting from forming an 831(b) captive provide more investment income to pay for equipment, repairs, or other business need. This is a source of funding that is currently unavailable via traditional self insurance models. Additionally, the captive can make a secured loan to affiliates provide dividends to the captive’s owners at lower tax rates.

Captive insurance companies are a powerful, but complex strategy that requires careful planning. A multidisciplinary approach ensures that captive clients get the most out of their self insurance programs.

Capstone’s Turnkey Approach to Self Insurance

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Capstone Associated Services, Ltd. is one of the oldest and largest sponsors of 831(b) self insurance captive arrangements, which underwrite property & casualty annual premiums of less than CURRENT_PREMIUM_CAP million per year. Capstone has experience forming other types of captives as well, such as 831(a) and 501(c)(15) captives.
In affiliation with the tax and corporate lawyers of The Feldman Law Firm LLP, Capstone provides the most comprehensive captive insurance planning available. Capstone's staff includes CPCUs (Chartered Property & Casualty Underwriters), ARMs (Associates in Risk Management), accountants and administrators.

Capstone is an attorney-led, captive insurance services provider, offering self insurance consulting, tax, legal, insurance, captive asset management, and accounting for one turnkey fee.

Having formed over CAPTIVE_FORMATIONS captives over the past CAP_YEARS_NUMBER years, we understand the importance of excellence in captive planning.

Captive insurance companies involve an overlay of insurance and tax law. Additionally, self funded insurance through a captive is highly regulated by the jurisdiction or captive domicile in which it is formed—Capstone has the in-house expertise to pair captive owners with the most appropriate domicile.

There are many requirements for a captive insurance program to be treated as a bona fide insurance arrangement. Proper planning and advisory expertise are essential.

Contact us to learn more about how your businesses can benefit from self insurance though a captive insurance company. Call WEB_TEL, or submit your information via the form.