In wake of the recent hurricane season’s devastating impact on the domestic United States and Island regions, we wanted to address an additional strategy you as business owner can utilize to provide ample protection.
Q. What’s new in 2017 for Captive Insurance Companies and how can they help protect my business assets if my existing insurance is not enough?
A. First, let’s understand what a “Captive Insurance Company” is. “Captive Insurance Companies” are private insurance entities owned by related parties, “owners of business and or businesses,” setup to self-insure and or reinsure the risks of their businesses (see attached link below from IRS on Section 831b Micro-Captive Transactions).
- Benefits of these structures include;
1. “New 2017 Limit” – Fund up to $2,200,000 in insurance premium directly and or indirectly tax free annually (this is a significant increase from prior year by $1,000,000 “2016 limit was $1,200,000”)
2. Invest funds in “Captive Insurance Company” (similar to an insurance company) to increase reserve funds and to protect against possible business risk claims in the future
3. If setup, a “Captive Insurance Company” could benefit you in the following ways concerning damage caused by natural disasters:
- Use funds from the Captive to supplement the costs associated with physical damage toward your office or place of business
- Use funds from the Captive to help restore business assets that may have been damaged due to a natural disaster
It should be noted that the investment income earned in “Captive Insurance Companies” will be subject to taxes. There are certain qualifications required to qualify for these types of structures and they are not appropriate for all businesses. If this is something of interest to you, please feel free to contact my office at your earliest convenience to setup an appointment ([email protected]).
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