Setting up a captive insurance company offers a lot of financial benefits and tax advantages to your company, but the process can feel daunting if you’ve never done it before. Luckily, setting up a captive may be easier than you think. To help you prepare, here’s an overview of the steps involved.
Do a Feasibility Study
Before setting up a captive insurance company, you need to make sure it’s the right choice for your situation. A feasibility study can help you assess that. With a feasibility study, you pay a third party to assess the benefits of a captive and how much work it is going to take. You may also need to do some actuary studies, but ideally, they should be completed in addition to a feasibility study. You shouldn’t just pick one.
Choose a Service Provider to Help With Setting Up a Captive Insurance Company
Typically, you need a service provider to help with the details so that you can focus on running your business. If possible, get quotes from a few different companies, but also get detailed information on their services so you know that you’re comparing apples to apples. Talk with each company extensively so that you get an accurate picture of what your future will be like together.
Select the Type of Captive Insurance Plan
Captive insurance plans fall into a few different categories. If you have a large company, you may want to choose a single-parent or a pure captive. However, if your business isn’t large enough to assume those costs and risks, you may want to opt for a sponsored or group captive where you form a captive along with other businesses in your industry or your local area.
Begin the Formation Process
Once you’ve selected the type of captive and the service provider, you can really get into the process of setting up a captive insurance company. During the formation process, you need to select a domicile that will ensure efficiency while also giving you the flexibility you need. Then, you need to pay formation fees which can vary drastically, and you need to make sure that you have the minimum required start-up capital which also varies based on your type of captive, ownership structure, the service provider you hire, and other details.
Then, you need to complete paperwork related to owner and director affidavits, biographies and disclosures as requested, reinsurance agreements, code of ethics, anti-money laundering affidavits, proof of residency, and any other required details.
Complete the Final Steps of Setting Up a Captive Insurance Company
Finally, there are a few final steps that you need to complete. You don’t necessarily need to take these steps on your own. Some service providers may complete them for you. This includes obtaining tax IDs, opening bank accounts, making deposits, creating purchase orders for your captive insurance plans, and handling the accounting for your plan. On top of that, you need to create operating and procedural manuals and educate your employees about the new plan.
To learn more about setting up a captive insurance company, contact us today. At Captive Insurance Management, we help businesses set up captive insurance plans that save money and safeguard success while minimizing risk.