As I said in part one of my blog on captive insurance companies, the exploding popularity of captives cannot be denied, and it is not difficult to understand why. A business that forms a captive insurer often enjoys lower premium costs simply by virtue of eliminating the middleman. In addition, up to $1.2 million in annual insurance premiums paid to a captive subsidiary are tax-deductible.
More than 90 percent of all Fortune 500 companies use captives, according to Forbes. Captives are popular because, when structured properly, these insurance entities can create substantial financial benefits for their corporate owners.
First and foremost, captives can provide substantial cost savings on insurance premiums for most lines of business insurance, including commercial general-liability coverage, workers’ compensation insurance, directors and officers’ risks and many others. To sweeten the pot, tax laws permit companies to deduct up to $1.2 million in insurance premiums paid to captives from their corporate tax bill.