831(b) Captive Insurance Company

Implementing an 831(b) micro captive insurance program turns a cost center into a profit center.

Explaining Section 831(b) in the Tax Code

"Micro captive" and "831(b)" is not synonymous. The 831(b) election in the tax code is not restricted solely to captive insurance companies. All small businesses are eligible.

Captive insurance companies operating with under $2.2 million in gross premium income are subject to different income tax rules.

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In order to qualify under the 831(b) election, captive companies must:

  1. Qualify as an insurance company for tax purposes. Risk shifting and sharing must be regulated like an insurance company
  2. The company must be domiciled in the U.S. and be taxed as a U.S. insurer, qualified under tax code 953(d)
  3. Gross premium income must be less than $2.2 million

A micro captive taxed under section 831(b) does not pay tax on underwriting income. Micro captives only pay income tax on investment income.

Be Aware of 831(b) Changes in 2017

Starting in 2017, there will be new rules regarding 831(b) elections. The U.S. Congress is always pushing to eliminate potential abuse of the 831(b) tax code. 

The new legislation will raise the $1.2 million limit on gross premiums and introduce new diversification requirements for new companies seeking the 831(b) election. Read more for details >>

How do 831(b) Captive Insurance Companies Work?

The parent company in your group captive creates a fund for covering irregular and infrequent risks. The 831(b) captive insurance company can even be used to lower third-party, traditional insurance premiums by raising deductibles and covering the difference.

Companies are allowed to pay up to $2.2 million in tax deductible premiums per year. Multiple companies pool their resources into a single captive to lower the overall risk of catastrophic loss, just like any other insurance plan. 

Industrial companies may cover pollution risk with 831(b) captive insurance.

What Does an 831(b) Micro Captive Cover?

The section 831(b) election in the tax code acts as a broad umbrella policy covering your company's uninsured or underinsured risks. You may pay up to $1.2 million in premiums (fully tax deductible) per year toward your captive plan. You receive the premiums tax-free, giving you incentive to set up a captive insurance plan. 831(b) may follow any or all of the following:

  • Product recall
  • Political risk
  • Environmental Risks
  • Patent Protection & Infringement
  • Regulatory liability
  • Workplace violence

Besides cost savings and insurance coverage, 831(b) micro captives let businesses transform risks into profit. An 831(b) captive can return underwriting profits to its parent, monetizing risks and increasing corporate profitability. You must understand how captive insurance compares to traditional insurance and investment options to know how they can help your company increase revenue. Rely on Alternative Risk Resources to set up, manage and administer your company’s 831(b) captive and let you reap the rewards of your business.

831(b) Captive Insurance Helps You Control Assets

Captive programs offer you numerous benefits giving you more agency in the financial operations of your company:

  • Lowest operating costs in the industry
  • Premiums based on individual loss
  • Complete transparency of all costs
  • Clearly defined exit strategy
  • Proactive loss control and claims management

Long-term proven results. Direct management of the insurance process. Careful loss prevention management. A captive insurance program offers several advantages to members looking to take control of their insurance destiny.

Relying entirely on a third-party insurer means leaving yourself vulnerable to a wide variety of risks your insurance company tells you aren't insurable. 

Take control of your own insurance and contact the captive insurance brokers at Alternative Risk Resources to protect yourself and create potential to profit from your own safe and efficient operations.


Captive insurance protects your employees and gives your company increased profit potential.

Insure Yourself: You're Already in the Business

Whether you like it or not, you are always exposed to insurable risks ultimately self-insured by your profits.

Instead of opening your company up to huge losses from rare catastrophic events, you may pool your resources into a captive insurance company to limit the damage. 

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Third party insurers will cover common insurable risks with a higher probability of claims. However, many won't bother to include other risks companies must absorb because their occurrence is too infrequent. Companies won't pay a steeper premium to cover losses that rarely, if ever, happen.

Current Risks Transferred to Third Party Insurers

  • Worker's Compensation
  • Automobile
  • General Liability
  • Product Liability
  • Property
  • Professional Liability
  • Medical Insurance

Common Self-Insured Business Risks

  • Policy deductibles and coverage exclusions
  • Errors & Omissions
  • Contract frustration
  • Bank deposits in excess of FDIC limits
  • Personal guarantees
  • Product recall
  • Patent protection and infringement

Business risks such as those in the right column above do occur every once in a while. Protect yourself against the one-in-a-million and limit your dependence on a third party insurer. Micro captive insurance brokers at Alternative Risk Resources, LLC help you set up a captive insurance company to take control of your self-insured risks and give yourself firm financial footing.

Contact the 831(b) captive insurance company advisors at Alternative Risk Resources and push the overall growth of your company with minimized risks and better profitability.


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