Micro Captive Insurance FAQs

WHAT IS A MICRO CAPTIVE INSURANCE COMPANY?
A Micro Captive insurance company is a legally licensed, limited-purpose property and casualty insurance company that is owned by its members under Internal Revenue Code (IRC) Section 831(b) operating with annual net written premium of less than $2.2 million.

HOW DO MICRO CAPTIVES WORK?
Micro Captives give small to midsized businesses the ability to self-insure against a variety of insurable risks, including those that would not be possible otherwise through traditional insurance markets. Micro Captives are stand-alone insurance companies with their policies and premiums as determined by independent actuaries. The Captive reports to the department of insurance of the domicile in which they are formed, as a separate entity. A Micro Captive can write custom insurance policies that fit their specific needs, self-insure against current risks and maintain control of the risk management process.

WHAT IS REQUIRED FOR A MICRO CAPTIVE INSURANCE COMPANY TO QUALIFY UNDER THE 831(B) ELECTION?
The Captive must meet the following qualifications:

  • It must annually qualify as an insurance company for tax purposes and operate as an insurance company with adequate risk shifting and risk distribution.
  • To be taxed as a U.S. insurer, it must be a U.S. taxpayer domiciled in the United States or offshore but having elected and qualified under tax code section 953(d).
  • It must operate with an annual written gross premium of less than $2.2 million.

WHAT TAX BENEFITS DO 831(b) MICRO CAPTIVES HAVE?
A captive insurance company in the United States taxed under IRC 831(b) provides that a captive qualifying to be taxed as a U.S. insurance company will pay tax only on investment income. Other ancillary tax planning benefits include premium tax deductibility when paid under IRC Sections 162, no current taxation of underwriting profit and tax-efficient access to the Captive’s invested funds to support retirement and buy-out planning.

WHAT ARE THE ADVANTAGES OF BEING AN 831(b) MICRO CAPTIVE MEMBER?
Being an 831(b) Micro Captive member enables you to share in 100% of the underwriting profits and investment income dollars. Additionally, it provides improved control and management of claims. A Micro Captive offers flexibility in policy design and coverage and premium payment scheduling. It can be integrated with existing insurance policies and can supplement a Group Captive.

IS AN 831(b) MICRO CAPTIVE MY BEST OPTION?
Chernoff Diamond will perform a full review and actuarial analysis of your current program (including incurred and realized claims) to help determine if a n 831(b) Micro Captive is right for you. Our certified insurance counselors will deliver a feasibility study to forecasts your risks and potential to capture savings through a Micro Captive Plan.

I HAVE ADDITIONAL QUESTIONS; WHERE CAN I GET MORE INFORMATION?
To learn more, visit our Micro Captive Insurance page or contact one of our Risk Advisors today at 411risk@chernoffdiamond.com.

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