Venture insurance programs are all different types of captive insurance. Essential with captive insurance, the insurance company is owned by the insured party. The insured invests money into the insurance company and may face losses, but the insured may also earn money from this innovative insurance structure. However, that is not the most important part of these policies, and in fact, there are a variety of benefits to captive insurance setups.
Benefits of Captive Insurance
Captives are designed to finance risk. With traditional insurance, you pay a premium and the insurer covers losses in certain situations as outlined in your policy. In contrast, with captive Venture insurance programs, you get to unbundle the elements involved in the premium and play a role in the policy’s price and delivery.
Beyond that, there are tax benefits with captive policies. If you set aside money in a savings account to cover future losses, you still have to report those funds as business income and pay tax accordingly, but if you put the funds into a captive insurance policy, they are considered insurance premiums and thus they are tax deductible.
As of 2017, if a captive has less than $2.2 million in premiums, you also don’t have to pay any income tax on the underwriting profit. You just face tax on the investment income that the policy earns. Captive policies are also a lot easier to handle than self-insurance which is a complex and convoluted process, and there are several different types of these policies.
Types of Venture Insurance Programs
Typically the Venture insurance programs fall into three different categories. Here are the options at Venture:
- Single-Parent Captive Insurance Structure: With this insurance program, the structure consists of the owner at the top, followed by the insurance company, and then, the insured. To qualify for this micro captive, you must meet risk transfer and distribution rules from the Internal Revenue Service. If that’s not possible, a group captive may be the best option for your situation.
- Group Captive: Also called a risk retention group, a group captive consists of a group of owners at the top. Then, the board of directors which is influenced and overseen by the owners or shareholders. The insurance company stems from the board of directors, and finally, the insured are under that point.
- Protected Cell Captive: Ideal for reducing overhead and creating a smaller economy of scale for a relatively modest operation, a protected cell captive features the managing company at the center and a number of cells radiating out from that. Sometimes this is called rent a captive. The managing company is responsible for operational functions and for ensuring the individual cell owners are qualified.
To learn more, contact us at Venture Captive Management. We can talk more about Venture insurance programs and help you find the right fit for your needs. We help you assess the insurance needs of your organization. Then, we guide you toward the best policy for your situation.