Should captive insurance be taxed?

Captive insurance is a legitimate tax structure for small-business owners. Premiums paid to a captive insurer can be tax deductible if the arrangement meets certain risk-distribution standards. Thus, the business gets a current year write-off even though losses may never occur.

What is a foreign captive insurance company?

A captive insurance company is a subsidiary formed by a private company to finance its retained losses in a formal structure under the guidance of an appropriate state insurance department.

Are captive insurance dividends taxable?

831(b) Captive earns on its insurance premium is taxed when they are distributed to its shareholders as qualified dividends or as long term capital gains, both of which are currently taxed at 15%.

What is a captive tax?

Captive Tax Provisions This means that premiums paid to a bona fide insurance company are deductible, whereas monies set aside in a savings account for self-insurance are not.

Are dividends from a captive insurance company qualified?

Remember, like any company, a captive has the ability to distribute dividends to its owner shareholders. As captive dividends are generally qualified dividends, the distribution of profits may be income tax advantageous to a captive owner.

How do captive insurance companies make money?

Earn investment income: Captives can earn investment income on their loss and unearned premium reserves. A guaranteed cost policy purchased from a commercial insurer would not provide this additional income to the insured.

Do captive insurance companies pay dividends?

How are captive insurance companies funded?

The captives utilize an independent actuary to project how much each member needs to contribute to its A/B Funds. The actuary uses the member’s actual loss history to estimate how much the company will need to finance its yearly losses.