Captive insurance companies are usually taxed on underwriting income after required adjustments for tax purposes. Captive owners may also deduct losses on unpaid losses as they are incurred, providing an accelerated deduction timeframe from typical insurance arrangements or traditional self-insurers.
What determines whether premiums paid to a captive are tax deductible?
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 are the disadvantages of captive insurance?
The group or association captive is a structure in which multiple businesses join together either through a formal association or an informal relationship to use a captive to obtain coverage or limits otherwise unavailable. This form has become a source of revenues and industry cohesion for many trade groups.