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Captive Insurance Is A Smart Money Saving Business Option

Companies can create sister or subsidiary companies that handle their insurance policies; this system is referred to as captive insurance.  This sort of insurance is not offered to the public, but instead serves as an alternative risk management solution for companies who do not want to use traditional insurance.  Since insurance premiums are very high for most businesses and a corporation can benefit financially by running its own in house captive insurance, it is an attractive option to many businesses of varying sizes.  A few companies have noticed that the costs of purchasing an insurance policy actually outweigh their potential losses.  That means creating a captive insurance company and self-insuring risk can be a wise financial move.  Insurance rates are calculated based on the financial risks of a company, but if one business has much less risk than another in its industry, it may wind up paying more than is necessary simply because of insurance company policies.  In an effort to make up for overhead costs and their own profit goals, insurance companies have to steadily increase their rates.  Prices charged by captive insurance companies are lower since they have less overhead and are more efficient.  The red tape and endlessly frustrating policies of most insurance companies are also greatly reduced or non-existent in captive insurance agencies.  Captive insurance policies must coincide with all insurance, contract, and tax laws.  For instance, if an established business forms a secondary company for use as a captive insurance company, the two must be completely separate in legal and tax terms.  The captive company has to be handled as an insurance company in order for the insured to claim deductibles for their premiums on their taxes.  Businesses can create a number of different kinds of captive insurance companies.  The parent company that established the captive agency is the only company that will be attended to by a single parent agency.  When several companies working in the same industry form a captive insurance agency, it is called an association captive.  Consumer insurance agencies have a lot of financial risk involved in their own operation, since massive pay outs could result in ruin for the company.  The captive insurance they have is issued by an agency captive company.  If an insurance company experiences catastrophic losses, they can share those losses with their subsidiary captive insurance agency.  Captive insurance is a smart plan for many companies that need to manage their financial risks but do not want to pay high premiums to a traditional insurance agency.  A company can receive product liability, physical property damage, professional indemnity, employee benefits, and additional insurances from their captive company.