Why You Should Have a Captive Insurance

Most insurance companies offer protection for individuals, businesses, and personal assets. Speaking of business, it is important to pay insurance so any risks will be covered by it. But, there is another option you can choose aside from commercial insurance policies.

This is called captive insurance. It exists, but a lot of business owners are not even familiar with it. Even so, the majority of Fortune 1000 companies avail captive insurances. If you are a business owner, you can consult a captive insurance attorney about this.

What is captive insurance?

Captive insurance requires setting up an insurance company for your own benefit. It aims to protect the risk operating a business. Likewise, it helps you manage business-related risks. These potential risks will be put into writing in the policy.

Captive insurance avoids the use of usual traditional insurance companies. The latter usually have unpredictable pricing. Meanwhile, some of the policies may not be applicable to the company. Nonetheless, captive insurance can help businesses through different reasons.

There are two major types of captive insurance – pure captive and sponsored captive.

Pure captive

It refers to captive insurers that insure only the owners’ risks. Under pure captives, there are single-parent captives and group captives. The former pertains to a single insured owner, while the latter refers to multiple insured owners.

Sponsored captive

This one also refers to “non-affiliated” or “non-owned” captive insurances. Sponsored captives need to place capital at risk and it is not owned by the insureds. Rather, it is formed by an entity intended for its clients.

Why is it important?

Having a captive insurance company serves important benefits for your business. These include the following:

Easy access to insurance


Unlike traditional insurance, captive insurances are customized to suit personal or business needs. It will ensure your risk coverage at a fraction of the cost, unlike traditional insurers. Policy customization offers more benefits which may not be available in the commercial market.

Tax savings and higher income

Captive premiums are tax-exempted by as much as millions of dollars annually, per captive insurance. In return, collected premiums can help generate extra income and give back to the shareholder.

Cash flow improvement

There can be cash flow improvement thanks to the expense factor reductions. Captive insurance has lesser expenses than traditional insurances. Plus, captive insurances also allow more control on insurance-related features. These features can be customized according to the users’ needs. Thus, it promotes more safety and more bearable loss experience.

Wider coverage

Captive insurances can offer wider coverage for different risk levels. As mentioned, it is tailor-fit to suit the users’ needs whether personal or for business purposes. But it is also important that the captive is in good operational condition.

In summary

Captive insurance is a great alternative to traditional insurance policies. It is similar to a mutual insurance company. They can put their capital at risk but can be assured of better returns and better control over their financial capabilities. Among benefits users can enjoy include:

  • More stable pricing

  • Easier access to insurance

  • Wider coverage

  • Cash flow improvement

  • Tax savings and higher income

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