Captive insurance is often thought to be a tool only available to Fortune 500 Companies. The reality is it can help many businesses in a broad spectrum of industries and a broad spectrum of sizes.
While the guidelines below aren’t set in stone, and both don’t have to be met, they are a good “rule of thumb” as to when you and/or your business should start exploring the option of captive insurance. The general guidelines are:
- Doing at least $10,000,000 a year in revenue
- Currently paying $250,000 a year or more in insurance premiums
If your business meets one or both of the above guidelines, the next step in determining whether captive insurance is a good option would be completing a feasibility study. If you’re interested in doing so you can reach out to our office here.
If captive insurance is feasible for your business, there are an array of benefits it will offer, some of those high-level benefits are:
- Keeping a significant amount of your current insurance premiums in a company that you own
- Create a more cost-effective way to cover the need of commercial insurance
- Gives the business owner the ability to re-invest insurance premiums
- Creates another estate planning vehicle that offers the same asset protection as a business
- Enables a business to more effectively manage its insurance risks
So, if your business fits the guidelines, the feasibility study shows captive insurance is a good option for you, and you decide to take advantage of the above benefits by forming a captive insurer, what exactly are you getting yourself into? Well, you’re creating another asset for you and/or your business by creating an insurance company.
A Captive Insurance Company is an insurance company formed by a business primarily for the purpose of insuring the risks of the business and its affiliates. While this sounds like a large ordeal to undergo, we do our best to do majority of the heavy lifting. There are some growing pains with implementing captive insurance, but the benefits will far outweigh any of those pains.
Another commonly overlooked benefit of captive insurance is giving your business the ability to insure risks that most commercial insurance companies won’t. Such as; the loss of a key contract, key supplier or accounts receivable. Some of the other risks you can insure are, but not limited to:
- General Liability
- Administrative Actions
- Business Income Protection
- Litigation Expense
- Contract Cancellation
- Loss of Key Customer
- Loss of Key Employee
- Intellectual Property
- Mold Remediation
- Body Part Insurance
- Product & Services Warranty
- Earthquake & Volcanoes
- Computer Operation and Data
This is again, a high-level view of what captive insurance is. If you’ve made it this far in this newsletter/article, then I’m sure you may have some questions. If you’d like us to address those questions, or if you’d like to determine if this is a tool that can be suitable for you, feel free to reach out to my office here, or you can reach me at to at my contact info listed below.
Founder, Managing Partner
Finance For Thought