If you own a business with several assets, it’s important to ensure that you are covered by a captive insurance company that operates legally and follows all applicable rules, particularly those of the Internal Revenue Services (IRS). Captive insurance is essentially a safety net for businesses in case of financial troubles – a way to ensure that the business can breeze through tough times and remain afloat with the funds coming from the captive insurance.
Aside from hiring an experienced captive insurance lawyer with a solid track record to take care of your legal concerns if you ever get sued, you should also be mindful of other relevant and critical matters concerning captive insurance. Here are five essential things that you must know about:
You have the right to hire your own counsel
In a typical situation, your captive insurance company will simply appoint a counsel who will take care of your case. This may seem like a convenient thing since you won’t have to look for one on your own but it has several possible repercussions, like getting an incompetent lawyer who just happens to get hired for bidding the lowest rate. The good news is that you don’t have to be exposed to rush a risk since you are free to seek your preferred counsel. This will allow you to have a better chance of winning your case and getting the longer end of the stick.
It is a great asset protection tool
Your captive insurance coverage is an excellent way of safeguarding your business’ assets in such a way that your creditors will have a hard time going after them. How? The system works in a way that the amount paid by the business towards the captive insurance is directly proportional to the value of that business’ asset that is deducted. In short, if you pay $1 to the captive insurance company, that’s $1 off your asset that your creditor can not go after in case they sue you.
The amount paid to a captive insurance company is tax-deductible
The premium that you will pay to the captive insurance company is actually tax-deductible as long as the amount passes the IRS’ risk distribution and risk shifting tests. So, aside from protecting your assets, captive insurance is also another means of lowering the federal income tax that you would’ve otherwise paid. Your captive insurance lawyer would surely know about this and could help you understand it better.
Captive insurance can be availed by a multitude of businesses
Another great thing about captive insurance is that it can be availed by a lot of businesses who are seeking to protect their assets, lower their income taxes, and enjoy other benefits offered by the said insurance. Here are some businesses that can get captive insurance coverage:
- Law firms
- Construction firms
- Manufacturing Companies
You need to make sure the amount of premium you will pay is computed and set by an actuator. It should also be signed by the same actuator to make it defensible when presented before a tax court. Just be sure to hire a reliable lawyer who can serve your best interests and help you enjoy the benefits of captive insurance coverage.