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Captive Insurance. Insurance company and insured are controlled by the same parties with the same interests. Advantages of Captive Insurance. Risk management Creative coverage Asset protection Lower net insurance cost Access to reinsurance market Estate tax planning Gift tax planning
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Captive Insurance Insurance company and insured are controlled by the same parties with the same interests.
Advantages of Captive Insurance Risk management Creative coverage Asset protection Lower net insurance cost Access to reinsurance market Estate tax planning Gift tax planning Flexible investment opportunities Improves cash flow Tax savings
Coverage Characteristics High Severity Low High Frequency
Coverage Characteristics Policy Limits $1M/$1M Exclusions Indemnity Only Reimbursement
Diagram #1 – Payment of Premium Shareholders Operating Corp $1.2 Million Insurance Expense Tax Deduction Captive $1.2 Million Tax Free Pool Up to $1.2 Million Premium/Yr* *Note: The premium is considered tax deductible insurance expense if the captive meets IRS requirements for risk shifting and risk distribution.
Diagram #2 – Risk Sharing w/ Single Captive Operating Corp #1 $100k Insurance Expense Tax Deduction Operating Corp #2… $100k Insurance Expense Tax Deduction Operating Corp …#12 $100k Insurance Expense Tax Deduction Captive $1.2 Million Tax Free $1.2 M Premium/Yr Up to $1,200,000 maximum yearly premium, paid by multiple entities. *Note: The premium is considered tax deductible insurance expense if the captive meets IRS requirements for risk shifting and risk distribution.
Diagram #3 – Estate Planning: Children’s Trust Shareholders Children’s Trust / Family Limited Partnership / LLC Operating Corp $1.2 Million Insurance Expense Tax Deduction Captive $1.2 Million Tax Free Pool Up to $1.2 M Premium/Yr* *Note: The premium is considered tax deductible insurance expense if the captive meets IRS requirements for risk shifting and risk distribution.
Total Expenses & Capital • One time turn-key set up fee: $75,000 • Estimated operating costs: $50,000 - 61,000 • Pool retains 5% of 51% (2.55% of gross) Cost up to $30,600 (assuming $1.2M in gross premium). • Minimum capital required: $250,000
Annual Expense Estimated annual costs: $50,000 - $86,600 • Management Co $2,500/month • Actuary review $7,500 - $10,000 • Audit $5,000 to $7,500 • Income tax filing $2,500 to $3,500 • Premium taxes $5,000 • Reinsurance exp. Zero to $30,600 (2.55% of annual premiums paid to your captive)
