A business typically forms a captive insurance company to cover risks that may not be “insurable” by conventional insurance policies. Liability insurance found in the marketplace often limits or excludes coverage for certain inherent operational risks.
When the time comes to file a claim for losses, policy exclusions can force business owners to cover these losses with revenue dollars that might have been used to fund important growth initiatives.
A supplemental captive insurance company can provide insurance for these exclusions, since the policies are written specifically for the operating company. Many hidden risks inherent in various business operations are capable of being financed through this comprehensive, alternative risk management solution.
Why Form a Captive?
Businesses that form captives can
- control earnings fluctuations caused by otherwise insurable events,
- insure business risks with tax-deductible premium dollars that are available to cover future losses, and
- take greater control of risk through identification of exposures and implementation of loss control strategies.
There’s more. Captives solve many problems usually associated with more conventional programs.
Captive owners can expect:
Consistent, available coverage from year to year. Captive insurance policies never drop off at any point, including product liability.
Fair pricing on coverages. With traditional insurance, rates are believed to be higher than what is appropriate based on incurred and projected losses.
Flexibility. Captive insurance policies are tailored to address the risks of the operating company. Difficult Risks can be written right into the policy.
Capstone has formed over CAPTIVE_FORMATIONS captives since 1998 and is head and shoulders above the competition. The legal services provided by our sister company, The Feldman Law Firm, LLC along with our in-house tax and insurance professionals do not disclaim responsibility for supporting clients in tax and legal issues. From setup to management, The Capstone Team will be in your corner every step of the way.
Alternative Risk Management
The National Association of Insurance Commissioners defines a captive as an insurance company that is created and wholly owned by one or more non-insurance companies to insure the risks of its owner or owners.
One of the primary benefits to owning a captive is having more control over your risk management. In most cases, conventional insurance premiums do not yield any real benefits if no claims are filed within a given year.
Most premiums are not tax-deductible and the monies paid count as revenue to the insurance company. With a captive insurance policy, your premiums accumulate over time and can become a financial asset to the owners who control the affiliated business—they can even be used as dividends or loans.
Through effective estate planning, ownership of a captive insurance company can also be transitioned to heirs through the use of trusts or Family Limited Partnerships (FLPs).
So why form a captive? Tailor-made risk coverage, cost-efficiency, better tax planning, wealth transfer, and more.
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