There is a way to reduce taxes and expenditures that is little known, even amongst many high flyers. It is called captive insurance and involves sharing or creating an insurance firm to cover your business group. Since almost 80 percent of companies in the Fortune 500 are doing this to save money, it makes perfect sense that you should at least have some knowledge of what captive insurance is. Not only can it save money but it can also help out when companies find outside insurance too expensive or the kind of coverage they desire is simply not available.
A captive option is first set up by the parent insurance company that provides a self finance option to purchase coverage. With a “normal” insurance program, money is spent on both insurance and service, but with captive insurance money is essentially invested, with a good chance of getting it back. Think of it simply as a form of self insurance.
Of course, the firm has to make sure the money is paid in the form of premiums, in this way it is exactly the same as taking out insurance with another company. Where savings can be made is that most of the time captive firms are found in areas where taxes and government regulations aren’t quite as severe. Many offshore centres have large captive markets and it is through the use of these that most savings can be made. This is how big businesses have flourished for ages, and now smaller companies can take advantage of this type of practice also. Most of the smaller entities can lower their insurance premiums and also get a tax deduction as well. There is also the possibility to rent a captive in lieu of ownership, something which is obviously more appealing to the smaller business.
Renting has the advantage of offering tax breaks and unlike a single parent captive, will meet the required standards of the industry. Without having to pay for additional expenses such as licensing and administrative fees, small companies should strongly consider renting. Every business owes it to itself and its owners to be as tax efficient as possible and this will most assuredly help come tax season.
Although complex in nature it is fairly easy to set up a captive insurance firm, there are many huge provider firms available who can guide you through the whole process. Many of these providers are actually multi-nationals so no matter where you operate there is a usually a captive insurance provider available to you.