Insurance is sometimes described as a necessary evil. You hope to never need it, but you’d better have it just in case you do need it. Knowing you need it and deciding the best way to go about getting it are two very different things, though. There are many options for insuring your business, but did you know you can self-insure?
One option for covering your own insurance and safety services needs is called captive insurance. The purpose behind captive insurance is to use your business’ own capital to insure yourself. Essentially, you become your own insurance company. You can choose to do this individually or as part of a group collective where you pool your resources and jointly insure one another’s businesses together. Of course, the legalities you’ll have to navigate will vary state to state and you may wish to look into some professional guidance on how to handle this for both you and your employees. If you choose to set up a captive insurance company as your subsidiary to handle your business insurance needs, be aware that once established, it has to obey all state and national insurance regulations.
There are drawbacks to insuring yourself. The primary one is money. Your business would have to have a large cash reserve in the event that someone needs to make an insurance claim. Hand in hand with that is your company’s need to assume all the risk for covering the policy claims. Depending on your company’s size, that could mean years where your captive insurance company costs more money to operate than what is budgeted. Other disadvantages include a reduced tax benefit because of changing federal laws, hiring either the correct people or the right third-party service provider to manage part or all of your insurance company and the fact that captive plans are more difficult to enter and exit than plans on the open market.
If there were no benefits, these captive insurance arrangements would never exist. Many people think the rewards outweigh the risks and that’s why captive insurance is gaining in popularity. The first benefit most companies think about is control. That control comes in the form of the ability to customize your coverage to meet your needs, increased insurance coverage based on those needs and expanded control over claims. Financial benefits can add up, too. Some companies experience a reduction in operating costs and enjoy flexibility in funding the policies.
Whatever your insurance needs, be sure to explore all your options.