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3 Unique Advantages of Captives

September 29, 2020 | Comment

Self-insurance requires businesses to use their resources to fund risks that are either not insurable or have high insurance costs. Businesses that seek to enter the self-insurance markets should consider captive consulting as they investigate the process of protecting themselves. These consultants will share the advantages and disadvantages of captive insurance.

Protect Assets

Captive insurance requires the parent company to invest its assets and pay premiums to its subsidiary insurance company. The invested assets and money paid in premiums no longer belongs to the parent company. If the parent company experiences an emergency or accident, the assets within the captive company are not available to the parent company’s creditors. Therefore, this type of company protects company assets.

Start a New Business

Captives are technically new businesses. They are separate entities even though they are subsidiaries and move the parent company into a new industry, spreading the company’s risk further. In addition, captives can become full insurance companies as their assets and capital grow. Corporate insurance is a profitable business, and it may result in greater profits than the core business of the parent company.

Legal Counsel

An attorney is typically retained any time a company must purchase insurance from the commercial insurance market. However, the insurer typically hires the attorney, and the insured uses the same attorney. Therefore, insureds may be unable to choose their legal counsel. In addition, these attorneys are typically hired for multiple cases with a single insurance company. This may affect the attorney’s loyalty to the client rather than the insurer.

It is always best to hire your own legal counsel. You want someone who looks out for your interests. Because the business owns the captive, the owners are able to choose their lawyers. This allows them to choose the best counsel rather than the least expensive.

Captives offer many benefits, from tax advantages and policy control to unique benefits, such as asset protection, new business startups and legal counsel choice. If you have uninsurable risks, consider investigating captive insurance companies.

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