Captive Insurance Companies (CIC)

A "captive insurance" is generally defined as an insurance company wholly owned and controlled by its insureds.

Your business can contribute $2,200,000 annually as a premium to captive insurance and take that amount as a tax deduction against its income each year.

Businesses can insure their risks through a commercial insurer or create their own insurance company that can provide them with custom-tailored and affordable coverage. Captives manage risks and can shift wealth to junior generations. A Captive owned by a trust avoids inclusion in the estate of the senior generation. This creates an exceptional opportunity for company owners to transfer substantial wealth without gift, estate, or GST tax.

The premiums received by the Captive are invested and not "lost" if not used to pay claims. 

This one benefit drives the use of Captives for the family business more than any other. A Captive that goes five years without significant claims can quickly accumulate $5M to $10M in assets. You can shift those assets to your children free of income, gift, and GSTT while creating an $11M income tax deduction for your business. 

The caveat is the captive is 100% liable to pay the insurance it underwrites. You can reduce the Captive’s risk by paying a reinsurance company to reinsure that risk.  

Below, we explore the basic structure and benefits of CIC.