Small business owners know that insurance, whether it’s workers’ compensation, health care, or liability, can be a huge expense. Unfortunately, the current insurance marketplace isn’t ideal for those looking to cut costs while maintaining optimal coverage. If this is your situation, captive insurance may suit your needs.
Never heard of captive insurance? You’re not alone, so here’s some information about what it is and what it can do for you.
What is Captive Insurance?
A captive insurance company, in its simplest definition, is an insurance company that’s owned by those it insures. As with traditional insurance companies, captive insurance companies provide an umbrella to cover various scenarios. Unlike traditionals, which dictate the pricing for their services, captives allow members to see what’s available and collaborate on the pricing, which is known as unbundling.
How is Captive Insurance Different from Self-Insurance?
In a word, taxes. More to the point, self-insurance doesn’t allow you to claim deductions on funds reserved to cover possible future losses. However, if the reserves are collective and called insurance premiums, a deduction can be claimed.
How Captive Insurance Covers Losses
A captive insurance company can be ideal for covering smaller losses that a traditional company would expect the insured to cover on its own. This is a boon for a small business which doesn’t anticipate major losses but might have difficulty covering amounts that a traditional insurer wouldn’t consider large.
Are Captive Insurance Companies For-Profit Businesses?
Like traditional insurers, captive insurance companies do seek profits. However, captive members share in these profits, which can in turn be directed back into the company to lower premiums if desired, which traditional insurers don’t tend to do.
This overview is by no means comprehensive. Captive insurance is another business outside your own, with its own regulations and difficulties. Existing captive insurance companies will be more than happy to go into more detail with you about whether or not captive insurance is the best option for your business.