Captive insurance companies are not new. However, they are getting a lot of attention as a wide range of professionals is presenting the concept to a diverse array of prospects. There is no question there are business owners, family offices, hedge fund managers, private equity fund managers, professionals, celebrities, and others that can conceivably benefit from establishing their own captive insurance companies.
According to Frank Seneco, President of the advanced planning boutique Seneco & Associates, an authority of captive insurance companies and author of Maximizing Personal Wealth: An Advanced Planning Primer for Successful Business Owners, “What is absolutely critical to understand is that a captive is for certain companies and certain risks an excellent risk management tool.”
Without question, there are many potential tax benefits for firms to use a captive insurance company. The error is when they are used inappropriately or incorrectly. “Using a captive insurance company is only appropriate if the risks being insured are themselves valid,” say Seneco. “For example, insuring against ten feet of snow in Florida in July is absurd. On the other hand, a hedge fund manager insuring against hackers might be completely valid. It may also make sense for a corporation to use a captive for their directors and officers liability insurance. In deciding on what types of risks to insure with a captive, an easy way to think about it is by identifying what risks the business is insuring against today.”
There is no doubt there are a multitude of firms that can legitimately benefit from using a captive insurance company. Moreover, if the claims are not considerable, there are potentially tax benefits for the owners of captive insurance companies. For those firms that are considering establishing a captive insurance company, it is vital to make certain they are using it as a risk management tool and are working with high-caliber industry authorities.
Source: Prince, R.A, Captive Insurance Company: A Risk Management Tool. Retrieved May 4, 2015 from http://www.forbes.com/sites/russalanprince/2015/04/26/captive-insurance-company-a-risk-management-tool/