For every 60 minutes you spend making money, spend 60 seconds thinking about how to protect it!
Boca Raton, Florida (PRWEB) January 21, 2016
Hillel L. Presser, Esq., MBA of The Presser Law Firm, P.A. offers tips on how captive insurance can be used in asset protection planning. Captive insurance companies (commonly referred to in short as "captives") are insurance companies established by a parent group or groups with the specific objective of covering the risks to which the parent is exposed. With captive insurance, companies are not attempting to make a profit; their purpose is to provide low cost insurance coverage. Captive insurance is more flexible than traditional insurance because the company can adjust the proportion of assumption of risk or the amount of reinsurance depending on how soft or hard the market is. Most of the large businesses in the world have at least one captive insurance company. For instance, Exxon-Mobil’s captive insurance company is Ancon Insurance Company.
1. Captive Insurance Defined
Captive insurance is insurance or reinsurance provided by a company that is formed primarily to cover the assets and risks of another company. Captive insurance is essentially an “in-house” insurance company with a limited purpose and is not available to the general public (“open market”). The insurance covers risks that are very real, however, have a low probability of occurring. These risks could also not be insurable on the open market or too costly to insure.
2. Using the Captive Insurance Company as an Investment Option
A captive insurance company is often used as an investment option. For instance, if you pay your captive insurance company for five (5) years and there are no claims – that money has essentially become an investment to you since you own the company. This is unlike car insurance, where if you pay for five years and have no claims – you have no right to get that money back.
3. Recognize the Advantages of the Captive Insurance Company
One benefit of captive insurance is in claims management. With “in-house” insurance, a company cuts through the red tape and bureaucracy associated with traditional insurance companies. Captive insurance companies can be based domestically or internationally. The parent company can dictate the procedure by which claims are processed. Perhaps one of the biggest benefits is that excess net premiums can be recouped by the parent company when claims are low, and the they can increase reinsurance in riskier areas. Types of risks that are typically covered include: public and product liability, physical property damage, professional indemnity, reputational harm, technological malfunction, loss of key customers, loss of hospital privileges for doctors, employee benefits such as medical aid and employer’s liability as well as many other risks. Another benefit of the captive insurance company is that you can save money on insurance since you underwrite the policy yourself and retain the underwriting profits. You can also draft your own policies that fit the exact needs of your business. Custom tailored policies can be much more efficient. A final benefit is that you can choose your own counsel in the event of an insurance claim. That way, your chosen attorney is looking out for your best interests, rather than a large caseload of many other insurance companies’ interests.
4. Reward Key Employees by giving them Equity in the Captive Insurance Company
Business owners can reward key employees by giving them stock in the captive insurance company as part of an overall strategy to retain those employees for the benefit of the business. Giving key employees stock in the captive is simpler than giving them equity in the business itself. This could also become part of your business succession plan.
5. What Makes a Business the Right Candidate for the Captive Insurance Company
The ideal candidate for a captive insurance company would be a business owner with a privately held business. Professionals, such as doctors and lawyers could also benefit from captive insurance. Businesses who have premiums for workers’ compensation, general liability and automobile insurance that exceed $250,000 are ideal applicants. Finally, businesses with strong financials and healthy banking relationships are great captive candidates.
The Presser Law Firm P.A., Asset Protection Attorneys, represents individuals and businesses in connection with the establishment of comprehensive Asset Protection plans that incorporate both domestic and international components.
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“For every 60 minutes you spend making money, spend 60 seconds thinking about how to protect it!” states attorney Hillel L. Presser, Esq., MBA regarding the importance of protecting your assets proactively.