To review, a captive insurance program is a wholly-owned subsidiary insurer that offers a customizable policy for your business. As we’ve discussed in previous content, it essentially works as a personal insurance policy that benefits your business alone. Created properly, a captive insurance program can help you save money and greatly benefit your business. By providing a lower loss ratio, federal tax advantages, and a favorable profit center, a well managed captive insurance program can certainly help you save money.
Pool Your Risk and Resources Together
To help you save money, a captive insurance group allows you to pool your resources and risks together. This usually applies to risk transfer agreements that involve traditional insurance markets. In comparison, a group captive arrangement makes sure your total cost of risk continues to decrease. Thus, a properly developed group captive insurance will increase your savings instead of worsening your risk.
Have a Heightened Awareness of Your Risk
One essential part of a captive insurance arrangement is a heightened awareness of your overall risk. In summary, this means that you’re more aware of your company’s risks and how they could affect you in the future. Thus, you take extra precautions to prevent these risks from happening. As companies mature, they become accustomed to captive insurance programs and get much better at limiting claims. This includes other risk transfer issues that typically arise with traditional insurance models, thus saving on the overall costs of risk.
Captive Insurance Creates a Profit Center and Includes Federal Tax Advantages
The point of captive insurance is that you own the entity that ensures your risk. Since insurance companies are in the business of making a profit, you’ll grow into your captive program and reap the benefits. This is due to distributions that fall back to you because of the profits you’ll earn from the captive alone. Plus, the premiums you pay for as part of the captive arrangement will be tax deductible given that it’s properly structured.