Your Personal Captive
What economic risks do you face in your life?
What can happen to cause you to have a bad year? Wouldn’t it be nice to put aside money in good years and have it available for bad years? Wouldn’t it be even nicer if you could deduct the money you put aside in good years on your income taxes? That’s exactly what you can do with a personal captive insurance company.
I have been involved in the formation of over 150 captive insurance companies over the past 5 years. These companies have covered such risks as:
- Reputational risk,
- Weather risks,
- Employee fidelity,
- Government administrative actions,
- Medical care,
- Key person death and disability, and
- Many more.
Owners of captives make an election under Section 831(b) of the Internal Revenue Code on how their insurance company will be taxed. Such an election defers tax on underwriting income (premium minus claims) until it is paid out in a dividend. The insurance company is taxed only on its investment income. Further, if the captive is used for business insurance purposes, the premiums paid to the captive are deductible for the business entity that pays them. The total premium now allowed under an 831(b) election is now $2,000,000 per year. Thus, a captive can be used to defer taxes on up to $2,000,000 of income.
While I do not claim to be a tax expert, I partner with several organization that can set up captives and handle all of the paper work. I would be delighted to put you in touch with them, and then I could serve as your captive’s actuary.
