“The 831(b) process helped us to identify uninsured exposures and provided a funding mechanism for those exposures. This program has enabled us to create a profit center where there once was only unfunded uninsured risk.”
President & CEO, Indianhead Foodservice Distributor Inc.
- All businesses have risks that are uninsured, and others that are uninsurable in the standard market.
- Insurance policies contain deductibles and exclusions that limit and/or reduce coverage. You may also have decided not to purchase insurance for certain risks, or are not aware of risks that could affect the assets of your business. These risks are “self-insured” and are usually unfunded on your balance sheet.
- The amount of self-insured risk may justify forming your own private insurance company (an 831(b) captive) to manage and finance these risks.
- The Tax Code – 831(b) creates a mechanism that allows businesses to establish pre-tax reserves to manage and transfer these risks.
“Unaware of the benefits allowable under this easy to implement process, we have been able to set up coverages for exposures we in the past did not insure and have created an estate planning opportunity for our owners that meets their needs.”
Chief Financial Officer, County Materials Corporation
- We assist in the formation and management of a captive that supplements your existing insurance. You continue to purchase insurance through the third-party market.
- Your company will buy an insurance policy from your captive to cover selected self-insured risks in exchange for a premium of up to $1,200,000 each year. The actual amount will depend on the types and amount of risks assumed by the captive, and your company’s taxable income and available cash flow.
- The premiums paid by your company are a deductible business expense and yet are received tax free in your new captive.
- We diversify the risks placed in your captive, which will help your captive generate underwriting profits and accumulate reserves.
- As your captive develops surplus and underwriting profits, you can access the profits of your captive through dividends or liquidation. In either case, the distributions will be taxed at more favorable rates than ordinary income tax rates. Profits are distributed at capital gains rates.