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Ask the Right Questions: Making Smart Decision in Creating an 831(b) Captive

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Captive Insurance or an 831(b) is a valuable risk management tool that offers plenty of benefits for business owners. It is generally defined as a self-insurance company formed to address specified insurance risks. Although it provides many incentives for businesses and business owners, it is still worth doing your research to find out if creating one is right for you.

Here are several important questions you need to consider before leaping into creating 831(b) captive for your company:

Who should I work with?

lawyer in his office deskIt can be difficult and perplexing to know where to even begin with captive insurance, so it is crucial to have someone to guide you through the process. If you are determined to push through with creating a captive, securing a reputable captive manager, and a respectable 831(b) attorney who values integrity and knows what they are doing should be the first thing on your agenda.

Make sure that they specialize in 831(b) formations and have a demonstrated background in insurance and underwriting. Your 831(b) attorney should have a firm grasp on CIC compliance and should be able to advise you in improving the operational and administrative aspects of your captive.

Is my business eligible?

Before you can concretize any plans, you will have to know if your business fits the criteria to be eligible to set up a captive. Do you own a profitable, uninsured or underinsured company with ample cash flow and the ability to pay insurance premiums? Do you have multiple entities who may be able to create multiple operating subsidiaries or affiliates? If you answered yes to either of these questions, then chances are you are eligible, but it is best to speak with your captive manager and attorney and to do further research into your own company to determine your status accurately.

Is it necessary for my company?

Setting up a captive will eat up time and money even with the assistance of skilled captive managers and attorneys to help you along the way, so you need to asses whether investing your effort into it is even worth it.

Firstly, think about what you want out of it. If you are seeking asset protection, annual adjustable tax deductions, and personal wealth accumulation, then you are on the right track. It will also be advantageous to you if you find that insurance is a significant cost to your company and if you are having difficulty finding coverage at affordable premiums.

What benefits will I enjoy?

Among the many advantages that captives provide include: improved cash flow benefits, price stabilization, custom insurance programs, tax advantages risk protection, wealth accumulation, estate planning, and asset protection. These are only some of the benefits of setting up a captive. If these sound good to you, then it is something you should pursue and look into further for your company.

As with anything, a well-thought-out, well-managed, and well-executed plan is key to success. Plan ahead and a captive will prove to be a healthy source of profit for you and your business for years to come.

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