Is captive insurance a good idea?
For many businesses, captive insurance is a no-brainer. In the right situations, it can reduce costs, insulate against insurance premium hikes, boost revenue, provide broader coverage and more efficiently finance risk. It really does sound too good to be true.
What does captive mean in insurance terms?
A captive is a licensed insurance company fully owned and controlled by its insureds – a type of “self-insurance.” Instead of paying to use a commercial insurer's money, the owner invests their own capital and resources, assuming a portion of the risk.
How does a captive insurer work?
The Captive Option Again, as a captive is an insurance company, reserve funds held for the payment of future losses are deductible. If a company simply increases its retention, the funds held in reserve do not constitute an insurance premium, and, therefore, the tax benefit is not realized.
What are the disadvantages of captive insurance?
Cons of a Captive Health Plan. Your Capital is at Risk. The number one disadvantage of a captive insurance plan is the fact your company must put its own capital at risk. ... Quality of Service Issues. As we've covered, captive insurance is a self-based product. ... Barriers to Entry and Exit.