All businesses need insurance, whether they are big or small. Your reason for needing insurance for your business could be to protect your product, or maybe it is to protect the owners or employees. Whatever the case, an insurance policy is a necessity for a functioning business model. If you own a small business, you likely are looking for an insurance policy to fit your profile. However, if your business has a lot of cash flow and operates on a larger scale, you may want to consider captive insurance. This insurance is actually owned by you, the insured, and functions like corporate self-insurance.
How It Works
The truth is, most insurance is confusing to understand at times. Captive insurance is no different, but an explanation can help make sense of it. A captive insurance company is owned by other companies that are looking to cover themselves with insurance. These companies, also known as the insured, pay premiums to the captive insurance company, which is owned by the insured. So it is essentially is like putting money away into an emergency fund. However, the big difference is that the money paid to the captive insurance company is tax-deductible, just like any other insurance policy.
About Distributing Risk
A captive insurance company generally only protects the insured, not the actual captive insurance company. When it comes to standard insurance companies, both the insured and the insurer are protected in their own way. Since captive insurance companies are held by the insured, then the only protection that goes out is to the insured. This is not a negative aspect, however; it actually helps corporations like yours gain improved cash flow and stability in their pricing.
Owning captive insurance can be a great thing for your business, especially if you are looking to avoid losses in profitability as well as gaining a level of protection for your business. If you are looking into getting captive insurance, be sure to reach out to a professional to get started.
