Captives, 83(b), Self-insured, High Deductible Insurance
Captive insurance is similar to being self-insured, but a parent group or multiple groups instead form a licensed insurance company to provide themselves coverage and potentially lower their tax liability.
Large corporations often take advantage of lower financial risks, insurance costs, and tax breaks by forming captives, while smaller businesses can struggle with expensive policies, insufficient coverage, and higher-than-necessary tax burdens.
This dichotomy is due to the large corporation’s ability to hire their own insurance and tax experts to navigate these systems’ regulations and requirements according to the Internal Revenue Code Section 831(b).
However, with the help of an experienced professional, like our agents at Gallant Risk, small companies can also enjoy the various tax and insurance benefits that captives offer.
How Can Gallant Risk & Insurance Services Help With Captives?
Forming a captive insurance company is complicated and involves a lengthy process with requirements that include:
- Financial projections
- Feasibility studies
- Domicile determination
- Preparation of the insurance license application.
- Proper submission of all documents
“At Gallant Risk, we provide our clients seeking captive coverage with a team of experts to help them best balance commercial policies and captive insurance while recommending the most strategic premium amount to pay for the captive coverage chosen.”
Premiums paid by the operating company (your primary business) to the captive (your newly formed insurance provider) for property and casualty coverage are typically tax-deductible as a necessary business expense, in the same way your traditional commercial insurance carrier payments are.
When to Consider Captive Coverage
Consider a captive if your business meets the following criteria:
- Profitable and seeking significant annual tax deductions
- Parent companies with more than one affiliate or subsidiaries
- Have at least $500,000 in sustainable operating profits
- Are currently underinsured or uninsured
Captives also benefit individual business owners interested in wealth transfer and accumulation strategies or asset protection.
What Captive Services Does Gallant Risk & Insurance Services Offer?
Insurance premiums continue to increase, and Gallant Risk & Insurance Services has extensive experience in captive insurance and self-insured programs to provide cost-effective coverage.
Our team focuses on the big picture and takes a multi-disciplined approach to alternative funding. We offer all of the following:
- Domestic and foreign
- Group captives
- High deductible plans
- Self-insurance, reinsurance
- Single parent captives
- Sponsored captives
When you meet with one of our agents, they will be able to explain the details of each of these opportunities and which is best for you and your business.
What Does Captive Coverage Provide?
Once you qualify as an insurance company through the U.S. federal income tax board, you must also meet the risk distribution requirements. Our team can go through these requirements with you and discuss your options.
Captives transform large deductibles into insurance premiums. After setting your retention level, an actuary determines your expected losses to calculate your captive premium. The next step is researching whether your premium is deductible from your U.S. federal income taxes.
Provision 83(b) under the Internal Revenue Code (IRC) gives an employee or startup founder options for paying taxes on the entire fair market value of the restricted stock at that time.
Protecting Yourself
When in doubt regarding taxes or insurance policies, it is always best to get a professional opinion to offer some advice and guidance on your next steps. Speak with one of our representatives to get more information on captives, 83(b), self-insured, high deductible insurance, and which path is most appropriate for you.
Gallant Risk & Insurance Services is a full-service insurance provider. Call our insurance office today at (951) 368-0700 to learn more about Captive insurance or one of our other comprehensive insurance services.