Could Your Business Benefit from a Micro Captive?

One term that has generated a lot of extra buzz in the business world is micro captives. However, a lot of people, even in the business world, are not fully aware of this concept. They may have heard that captives are good for risk mitigation, but what does that mean?

Captives, in Short

Captive insurance options are a form of self-insurance that include, among other things, risks that could not be insured through traditional means. These insurance options are best described as standalone insurance companies. Independent actuaries decide the premiums and policies for these insurance products.

What is a Micro Captive?

Captives have traditionally been a product that large companies have used to help protect their assets. However, micro captives put this same power in the hands of small and medium businesses. According to IRS regulations, a company with 1.2 million or less of net written premiums can make use of this option.

How This Insurance Differs

The owners are primarily responsible for controlling and supplying the insurance. One of the major benefits is the insured being able to influence the investment management, claim management policies, and underwriting. As the policy’s main beneficiaries, the insured can customize the policies yearly.

Major Benefits of Captive Policies

Micro captives are an effective way to enjoy coverage without coping with the volatility that affects much of the conventional insurance market. Under IRS rules in 2018, companies retained the ability to deduct for future expenses through captive use. Captives are also useful for estate planning, as these entities can be owned by a trust under the control of heirs.

What Companies Are Best Suited to This Insurance Type?

There are a few criteria that companies should be able to meet, including paying able to pay about $450,000 in premiums yearly, identifiable risks and insurance, and taxable income over $750,000. Privately-held businesses will benefit the most from such arrangements.

A micro captive can be just the key that the right type of company needs to manage their risks.