Captive Insurance

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Choosing a domicile.
■ Regulatory environment. Some jurisdictions are friendlier than others, or their
statutes may permit different used and forms of captives.
■ Minimum capitalization requirements – varies between jurisdictions from
$150,000 to $750,000. Separate series of a group captive requires risk-based
amount of capital, typically
■ Start-up costs and annual maintenance – typical start-up costs range from
$50,000 to $80,000 for pure captive (plus required capital) and from $20,000
to $25,000 for cell (or series) of group captive.
■ Underwriting risk classification
• Traditional coverage or non-traditional coverage, such as loss of license.
■ Tax implications.
• Small insurance company with premiums less than $1,200,000. See
Section 831(b) of the Internal Revenue Code. Applies to US tax-law
compliant companies.
• Excise taxes on premiums paid for non-US captives.



0 THOUGHTS ON “CAPTIVE INSURANCE”

  1. 412i 419E IRS Audits and Problems
    412i, 419e plans litigation and IRS Audit Experts for abusive insurance based plans deemed reportable or listed transactions by the IRS.
    Thursday, March 29, 2012
    Captive Insurance and Other Tax Reduction Strategies – The Good, Bad, and Ugly
    By Lance Wallach May 14th
    Every accountant knows that increased cash flow and cost savings are critical for businesses. What is uncertain is the best path to recommend to garner these benefits.
    Over the past decade business owners have been overwhelmed by a plethora of choices designed to reduce the cost of providing employee benefits while increasing their own retirement savings. The solutions ranged from traditional pension and profit sharing plans to more advanced strategies.
    Some strategies, such as IRS section 419 and 412(i) plans, used life insurance as vehicles to bring about benefits. Unfortunately, the high life insurance commissions (often 90% of the contribution, or more) fostered an environment that led to aggressive and noncompliant plans.
    The result has been thousands of audits and an IRS task force seeking out tax shelter promotion. For unknowing clients, the tax consequences are enormous. For their accountant advisors, the liability may be equally extreme.
    Recently, there has been an explosion in the marketing of a financial product called Captive Insurance Plans These so called “Captives” are typically small insurance companies designed to insure the risks of an individual business under IRS code section 831(b). When properly designed, a business can make tax-deductible premium payments to a related-party insurance company. Depending on circumstances
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