Captive Company

Capital allocated to the Captive Company is an investment that earns interest income and provides a base for operational income. The Captive owner moves money from one pocket to another expecting a handsome return for doing so. The capital allocation requirement is usually between 20% and 40% of the annual premium income projected in thefeasibility study.
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Small Captive Insurance Companies, also known as IRC 831(b) companies or 831 b captives are occasionally recommended by Financial and Insurance Counselors, Tax Advisors and/or Estate Planners. They allow you to insure your own companies and keep for yourself the premium that has not been used for claims or operational expenses.
The Carrot to encourage formation of small privately owned insurance companiesis that if oneelectsto be taxed under IRC 831(b) captive it will pay no federal income tax on its premium if its annualpremiumincome is less than $1.2 million dollars. Once you un-elect, you cannot go back.
831b Captive Insurance is a good platform for risk management and tax management. A risk that every business faces is the possibility that external events may cause the insurance industry to raise your rates or cancel your coverage. The Captive owner moves money from one pocket to another expecting a handsome return for doing so.
Privately owned, closely held insurance companies known as Captive Insurance Companies or simply as agency captives. The Captive management company will want some good faith money as proof of intention and to cover part of the cost of preparing a Feasibility Study.ROI will be based on feasibility study.
Each Captive management company has its own billing protocols; be prepared to lay out at least $10,000 to get started and be sure you know and understand the other expenditures that will follow. An association captive gives you the opportunity to retain roughly half of that. Operational savings result from minimizing or eliminating commission payments, profit, advertising costs and office overhead along with hedges against moral hazard, adverse selection and compromises for Wall Street favor.
Association Captives have become increasingly realistic options for smaller companies and successful professionals who are exposed to large claims and ever larger demand for premium from the insurance industry at large.
Begin a captive with relatively little money. Formation fees are generally about $75,000 but can be as low as $35,000. Annual management fees range from $18,000 to $100,000 or more but are most commonly in the $40,000 to $60,000 range. Third Party Administration (TPA) fees are a function of claims activity and are paid from the Captive's revenues.
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