831 (B) Captives Insurance Programs

An 831(b) captive is ideal for high-net-worth individuals who operate small businesses. Similar to traditional captives, 831(b) captives offer decreased insurance cost, self-insured deductible management, direct access to reinsurance, tax deductibility of premiums and improved claims handling.

In addition to these traditional benefits, 831 (b) captives have the added economic benefit of being income-tax-free. (It is taxed only on its investment income). This benefits both the business and captive owner and can be a useful vehicle in wealth transfer.

To facilitate real insurance and wealth transfer, the captive is owned by the business owner's dependents or trust. The premium, maxed at $1.2 million per year, is paid by the business to the captive. The business owner receives an immediate tax deduction for the full premium amount.

The captive collects the premium income-tax-free, which is used to pay claims. Any premium in excess of paid claims accumulates to the benefit of the captive (e.g., a children's trust) and can be used to buy life insurance or paid to the trust as a dividend.

This provides a 20% tax advantage, as the distribution would be taxed as a dividend/long term capital gain at 15%, versus a 35% tax rate for ordinary income.

DataRisk is experienced in the captive arena and can structure an 831(b) captive insurance program that offers true insurance and an efficient wealth transfer mechanism.