Most any business will require at least some form of insurance coverage to help protect it against a myriad of potential expenses, such as loss of tangible property, theft, and liability. In many cases, coverage is purchased through an outside insurance vendor.
But there are other, little-known alternatives that could provide protection, while at the same time offering the opportunity for profit. One such option is to use a single parent captive.
A More Profitable Captive Program
Similar to transferring risk to a traditional insurer, captives issue coverage and pay claims in return for the payment of a premium. By taking it one step further, though, a “single parent” captive could result in the captive recouping a percentage of the underwriting profit.
It is important to note that there is a difference between a captive insurance company versus a single parent captive insurer. In this case, a captive insurance company is a subsidiary that is owned by one or more “parent” entities and that is in existence mainly insure the exposures of its owner (or owners).
With that in mind, a captive insurer will take on a portion of the risks that are being insured, with the balance of the protection being covered by another insurance carrier that is known as a reinsurance company.
Alternatively, a single parent captive insurance company is one that is set up as a subsidiary of a larger company, and that is also owned by the parent company. In order to act as a single parent captive, it is essential that IRS rules are closely followed – which include having reason(s) to act as one other than just the receipt of tax advantages.
Does the Single Parent Captive Option Make Sense for Your Business?
Taking on risk could lead to reward using the single parent captive program – provided that it is properly implemented. But this coverage strategy isn’t right for everyone. To learn more, contact Coastal Insurers at (800) 368-3363 ex. 402, or send us an email at blair@coastalinsurors.com to set up a time to chat.