Captive insurance companies are insurance companies established for the purpose of financing risks emanating from their parent company. Using a captive insurer is a risk management technique in which a business forms an insurance subsidiary to finance its retained losses in a formal structure. In other words, the parent company sets up its own insurance company to satisfy its insurance needs, instead of obtaining this coverage from a large third-party insurer.
Why establish a Captive?
Forming captives may be one of the best risk management and wealth planning tools available to middle market business owners. Captives can help:
- Control the rising cost of insurance
- Provide gap insurance for self-insured or non-insured risk
- Income tax savings
- Asset protection
- Investment diversification
- Estate planning – wealth transfer
Captives are one of the best asset protection tools available to business owners. Assets in a captive are not reachable by creditors and attorneys, and they are only available to pay valid claims-those approved by the claims department of the captive company.
Captives are not for everybody as they require significant administration and expense. Captives are specialized risk and business management tools that require special management expertise.
At Value Architects we can help you decide if a captive is right for you. Please contact us to discuss this risk management alternative.