Why Captive Insurance May Be The Right Choice For Your Business
There are a number of aspects that play a role in both the daily operations of a business and that also provide benefits to that business’s success. Insurance falls into this category. It is a vital component for the daily operations of a business providing coverage for injured employees, damaged equipment and, in some circumstances, product loss. All insurance is not the same so choosing the right type is vital. Captive insurance companies are owned by the institutions that it insures. This is can be the right type of insurance for a few reasons.
The first benefit of captive insurance has to do with access. Certain aspects of business operations that would be difficult or costly to cover with typical insurance can be obtained through captive insurance. This is due to the fact that policies can be specifically tailored to the risk that needs coverage. This is often achieved at a lower cost than with traditional means of insurance.
Tax premiums for captive insurance are tax deductible. This is because they are an ongoing and necessary business expense. The tax-exempt cap number for collected premiums is capped at 2.2 million per year for each captive. As this total grows over time, the excess can be invested to generate further income that can then be channelled back into the company and distributed to shareholders.
Unlike with traditional insurance, the cost of policies is based upon trends within the company and its history of loss, rather than that of the industry for which it is a part. Because you also own the insurance company, you get to aid in stabilizing and keeping costs low. This process typically helps identify those things that can increase risks. Being able to avoid and better manage risks leads to an improvement in the control of loss.
Captive insurance should be considered if the business is in a position to do so. Having it reduces out of pocket cost while also allowing for only the specific coverage that you need which, in the end, leads to a healthier bottom line.