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White Coat Investor Podcast
WCI #342: Captive Insurance
Nov 23, 2023
The podcast discusses captive insurance, including who it is for, how to evaluate a good plan, and setting premiums. It explores the benefits and importance of captive insurance for business owners, particularly in managing risks like supply chain, brand protection, and cyber threats. The requirements for being a trusted advisor in a brokerage account are also discussed, along with investment options and diversification within an S&P 500 index fund. The podcast concludes by exploring captive insurance as a tool for risk management and tax strategies.
01:04:35
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Quick takeaways
- Captive insurance allows small to mid-sized businesses to self-insure risks traditionally not covered by insurance carriers, providing potential tax advantages through the 831B plan.
- Doctors can use captive insurance to self-insure business risks like malpractice insurance and cyber risk, converting ordinary income into capital gains and benefiting from tax advantages.
Deep dives
What is Captive Insurance?
Captive insurance refers to the practice of self-insuring risk by forming an insurance company owned by the insured. Large companies have been using captives for a long time to self-insure risks that traditional carriers won't cover, such as product liability. In recent years, the concept has been extended to small to mid-sized businesses through a tax code provision known as the 831B plan. This plan allows businesses to expense premiums at the operating company level, creating tax advantages. The money put into the plan stays tax-deferred until it is used for retirement or other qualified purposes. The premiums are based on a percentage of the business's gross revenue, with a cap of 10%. The excess risk that is self-insured can include various types like cyber risk, brand protection, dispute resolution, and business interruption.
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