Captive Insurance Companies

Are you a Business Owner who:

  • Is self-insuring?
  • Is having trouble finding a way to insure some elemental risks?
  • Has at least $500,000 annual income?

If so, this may be something to consider. 

Did you know?

  • Captives are often used by large corporations to lower insurance costs.
  • Small closely held companies can take advantage of many tax and business benefits by setting up their own Captives in the jurisdiction that makes the most sense.
  • IRS regulations mandate that there must be actual risk shifting and risk distribution.
  • Captives formed under IRS Code §831[b] are especially tax favored. The premium income is not taxed, only the investment income is.
  • Captives can be extremely useful for estate planning purposes. A Captive can be owned by the family members of the parent company owners, or a trust set up for the benefit of those family members.

Some of the possible benefits of owning a Captive:

  • Insuring risks that would otherwise be uninsurable.
  • Access to lower cost re-insurance market.
  • Asset protection from the claims of business and personal creditors.
  • Reduction in amount of premiums currently paid out by the Parent Co.
  • Business tax deduction for the parent company for the insurance premiums paid to the Captive.
  • Wealth can be accumulated in a tax favored vehicle.
  • Distributions to owners at favorable income tax rates.
  • Possible gift and estate tax savings for the shareholders.
  • Income tax favorability for the Captive and the Parent Co.

Ideal candidates for setting up a Captive Insurance Company:

  • $500,000 or more in sustainable operating profits.
  • Bona fide uninsured or underinsured risk that needs to be covered.
  • Multiple entities or those who can create multiple operating subsidiaries or affiliates.
  • Desire for personal wealth accumulation.
  • Need for family wealth transfer strategies.
  • Need for asset protection.
  • Substantial annual adjustable tax deductions (Disclaimer: We work with outside professionals to facilitate this evaluation).

NOTE:  Setting up a Captive should not be taken lightly and they are not for everyone.  Certain minimum requirements must be met or they are inefficient. You must have risk to shift or transfer. The diligence process takes several weeks and the implementation can take up to 3 months. If you have bona fide risk and would like to see if this strategy is the right one for you, call our office today at 310-625-7747 and let’s begin the conversation.

Disclaimer: HK Wealth Management, Inc. is not a CPA firm or licensed to dispense tax or legal advice. Please consult with your CPA or attorney.