What are other benefits derived from captive insurance companies?
In addition to favorable tax treatment, CICs provide a business with stronger insurance coverage. Since business owners control the CIC, insurance polices can be customized for their particular business needs in terms of scope of coverage, terms of deductibles, and levels of risk and premiums. With your own CIC, the business owner also has investment control of the assets in the CIC. A properly structured CIC will only be subject to tax on investment income, so tax-free vehicles are sometimes used. CIC owners might also consider investing funds in permanent life insurance policies, which provide tax-free growth, a death benefit to heirs and tremendous investment leverage unmatched by other tax-free investments.
How should businesses mitigate any risks associated with captive insurance companies?
These are not typical life insurance policies but are customized to accomplish several goals within the CIC, and it’s crucial that they are managed properly in both the short and long term. That is why having the appropriate professionals involved when considering a CIC is paramount. The attorney, CPA, actuary, CIC management company and insurance professionals should be experts in the CIC area — a minimum of 10 CIC clients will usually ensure that these much-needed professionals have the required expertise.
In addition to helping through the maze of CIC rules, your professional team will help choose the best domestic or foreign jurisdiction for the CIC, determine the appropriate property and casualty insurance for your business, assist with the reporting and tax filing requirements, assist with legal requirements to ensure maximum asset protection, provide options for investment vehicles and provide options for transferring wealth through estate planning.
If properly structured and managed, a CIC could possibly be the risk management, tax reduction and asset protection vehicle for which business owners have been searching.
Robert N. Greenberger, CPA, PFS, AEP, is a tax partner in the Advisory and Business Services Group at Habif, Arogeti & Wynne, LLP. He has more than 25 years of experience with a strong concentration in taxation, estate planning and closely held businesses. He has achieved the Accredited Estate Planner designation and assists with the planning and implementation of captive insurance companies, family limited partnerships, trusts and Subchapter S corporations. Reach him at (404) 814-4949 or [email protected].
