It has been a tradition for corporations to maintain and operate their own captive insurance group to reap their own financial benefits, along with the various tax advantages that go along with captive insurance. Here are just a few of the reasons why this has been and still remains a popular option among successful corporations and other companies,
- When the parent company pays the insurance premium to the captive insurance company, the total amount of the paid premium can be written off at the end of the year as a tax-deduction.
- There are a wide range of other tax-saving opportunities beyond just the premium being a tax write-off. These include, but are not limited to, estate and gift tax savings at the end of the year for shareholders and income tax savings when it comes to both the parent and captive companies.
- Captive insurance policies act as a great vehicle for the company to accumulate wealth because the vehicle belongs to a tax-favored status.
- These insurance policies help protect assets of the company from creditors both personal and business.
- The amount of premiums which are presently paid by the parent company are always reduced when they switch over to a captive insurance arrangement.
- Companies have the ability to insure things of especially high-risk that in other cases may turn out to be not insurable at all. This is because the parent company is in complete control of the captive insurance company. The parent company, in this case, can decide what is an acceptable risk and what is not which is obviously of great benefit to the parent company.
- Captive insurance groups also give the parent company access to the much lower-cost re-insurance markets. This could otherwise not be done by the parent company.
As can plainly be seen, there are great advantages and very little, if any, downsides to structuring a captive insurance situation. Any company should look into doing this and consult with their accountant and attorney to see if this would be of benefit to them.