Considering Using a Captive for Your Small Business?

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Many businesses have used a captive insurance company to insure their property and casualty risks.  A captive arrangement can be ideal for businesses with sufficient cash flow looking to better manage their insurance needs, including costs, coverage and service.

Typical considerations can include:

  • The need to cover substantial risks (e.g., real estate developers).
  • The desire to gain tax advantages not associated with self-insuring risks (e.g., premiums paid to the captive may be deductible and captives owned by children or grandchildren may offer a tax efficient way to pass wealth).
  • Coverage needs that are not being met by the commercial market (e.g., coverage is unavailable or too expensive).
  • The desire to reduce costs (e.g., premiums paid to a captive typically do not need to account for the profit margin sought by a commercial carrier).

There are many types of captives and the considerations are not limited to those listed above. Determining whether a business should use a captive, and which type of entity structure is appropriate for that business, should be done with the assistance of legal, accounting and tax advisors.

Once a Captive company is properly established and capitalized, it may want to consider the purchase of a life insurance policy using some of the reserves or capital surplus for business planning purposes, such as Key Person insurance, employee retention and reward, or Buy/Sell arrangements

Life insurance should never be the primary asset owned by a captive and excessive amounts of life insurance may suggest an inappropriate use of this business strategy.


The information provided here is for educational purposes only and no guarantee of accuracy, timeliness or suitability is offered or implied.  None of National Life Insurance Company or Life Insurance Company of the Southwest or their agents, employees, advisors, officers or directors (collectively, “National Life”) endorses or approves the use of a captive insurance company strategy or any provider of captive insurance company services. Agents are not authorized to act on National Life’s behalf in recommending any business strategy.  National Life has not evaluated nor will evaluate a captive insurance company strategy or the suitability of using an insurance policy as a component of such a strategy.  National Life is not authorized to make and makes no representation regarding the suitability, effectiveness or legality of any business strategy.  National Life does not provide legal or accounting advice.  National Life is not licensed to offer life insurance policies for sale outside of the United States. Applicants may be required to execute a hold harmless agreement acknowledging these and other matters and indemnifying National Life.