Business Managment - What You Nee To Let The Pro Do

Tricia Borren

March 20, 2014

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Large companies in the United States have benefited from managing their own captive insurance companies for many years. Most companies were designed to offer coverage to individuals in areas where insurance was not provided at a reasonable price. The companies were also established to give insurance to individuals in locations where insurance was not available. These particular insurance companies are located offshore. There are less risk management benefits for these companies; however, the tax advantages were important.

Most recently, many businesses learned about captive insurance. The businesses learned that the insurance gives them great benefits. The benefits include risk management options that are needed by bigger companies. The insurance also provides tax planning opportunities. Managed captive insurance and structured companies offer various tax and non-tax benefits.

Individuals Who Should Use Captive Insurance

A businesses that earn a lot of cash each year and need annual adjustable tax deductions should consider captive insurance. Also, businesses with various entities or many operating subsidiaries would benefit from captive insurance. The amount of money a company gains also matter. Captive insurance is a good option for companies that earn $500,000 or more.

Captive Insurance Basic Requirements

The payment to the captive must be an insurance deductible. This is only possible if the captive can provide information the shows that is it a valid insurance company. An insurance license must be obtained from a foreign jurisdiction or from the state.

Captive Insurance Basic Operation Information

Because the tax benefits of smaller captives are so useful, most businesses forget that a captive must function as an insurance company. How a capable captive management company is used is important. Efficient tasks are needed and are required for standard operations.

Various requirements can put the standard day-to-day management procedures in risky situations. Most tasks should be handled by individuals who have skills that most typical business employees do not have. Basic tasks include annual financial statement audits, annual actuarial reviews, claims management, and more. The management company’s involvement in basic investment procedures of the captive is important. Each task ensures that the captive’s liquidity is handled efficiently.

Possible Captive Insurance Risks
The IRS has used various approaches over the years. The IRS does not attack captives. Instead, the IRS uses safe harbor rules that regulate captives. Because of this, risk distribution and risk shifting is a requirement. Major loan-backs should be avoided. Also, companies must maintain a proper level of capitalization. You can avoid these problems by hiring a captive insurance company manager to handle all your insurance problems.