What is a captive?
Simply put, an 831(b) captive insurance company is a small, customized insurance entity owned by you!
Primarly designed to insure risks for its parent company. This specialized form of insurance provides full dollar-for-dollar coverage for claims, ensuring comprehensive protection for the parent company.
The premiums paid to the captive are tax-deductible, offering significant financial efficiency. All while keeping more of your premium rather than the 3rd party carier. Additionally, captives promote better risk management by addressing non-traditional or "below the surface" risks that conventional insurance policies often overlook.
By forming a captive under Section 831(b) of the Internal Revenue Code, businesses can benefit from optimized financial practices through tax-efficient premiums, dividends, and secured loans. This strategic approach not only strengthens the company’s risk management framework but also enhances its financial stability and operational resilience. Furthermore, 831(b) captives can accumulate surplus reserves over time, which can be used for future claims, providing an added layer of financial security.
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Unseen Risks
Below the surface risks
Dive beneath the surface of traditional insurance, and you'll find a hidden world of risk left uncovered, like an iceberg's unseen depths. COVID-19 revealed these often self-insured risks. Owning a captive insurance company offers stability and tailored coverage for an array of risks, ensuring protection where traditional policies fail. Safeguard your future and navigate challenges confidently with a captive solution.
Uninsured Risks
- Data Breach
- Business Interruptions
- Audit & Legal Defense
- Deductible Reimbursement
- Supply Chain Interruption
- Key Employee Loss
- Reputation Damage
- Contractor Default
- Warranty & Service Contracts
- And more
Traditionally Insured
- Commercial Property
- Professional Liability
- Employee Benefits
- General Liability
- Workers Comp
What is the "Four-Part Test"?
4 part test
4-Part Test for a compliant insurance company
Risk Transfer
A contractual transfer of risk from the operating company to an insurer is essential. The SHC Plan employs a Direct Writer, which underwrites the risk and, in return for premiums, issues policy contracts to the operating company.
Risk Distribution
To minimize the risk that claims exceed the premiums collected, the 831(b) Plan leverages the law of large numbers to distribute risk among unrelated parties. Each captive managed by SHC collaborates with other captives in risk-sharing cooperatives. These co-ops mutually distribute each other's risks on a proportional basis.
Fortuitous Risk
The risk transferred through a contract must be unforeseen or accidental, distinct from routine business risks. SHC’s Direct Writer specializes in underwriting a variety of such unpredictable risks, including business interruptions, dispute resolution, political risk, brand damage, and several others.
Insurance Principles
The 831(b) Plan must operate like a typical for-profit insurance company by adhering to fundamental insurance principles. These principles include the contractual transfer of risk, application of the law of large numbers, a clear method for determining premiums, a defined process for handling claims and determining covered losses, and the management of reserves to generate investment income.
Talk with us:
+1 (801) 946-4347
Or