Captive Insurance

Captive Insurance is when a business sets up its own insurance company to provide coverage. The reason for this may be that the external insurers are charging too much, or coverage required is unavailable. This is a great way for accountants and small business owners to reduce taxes and expenses. By either creating or sharing "a captive insurance company", substantial tax and cost savings will benefit the small business owner.

The parent companies of several Fortune 500 companies create a captive so that they have a self-financing option for buying insurance. The captive then either retains the risk of providing insurance or pays companies that reinsure insurers to take the risk. Typically, the captive is based in countries that have a favourable tax treatment and less stringent controls. If you buy insurance from a regular insurance company, you are buying a service, wherein the money is spend and gone. When you use captive insurance your money buys a service but it is invested with a good possibility of a return.

For small business, the best thing would be to share or rent a large captive. This will considerably decrease your costs of insurance and obtain tax deductions at the same time. There are, as well, significant tax advantages to renting a large captive as opposed to owning a captive. By renting a large captive, you only pay a pro rata fee to cover all administrative expenses for the captive insurance company. Other benefits of a captive insurance are low policy fees and no capital responsibilities to meet solvency requirements or annual management and maintenance costs.

To rent a large captive, the company needs to simply fill out some forms. Renting a captive requires no significant financial commitment beyond the payment of premiums.