Taxation Issues For an Insurance Company

  • Without a Captive, Self-insurance reserves are not generally tax deductible.
  • For insurance premiums to be tax deductible, the Captive must be recognized as an insurance company for federal income tax-purposes.
  • Risk transfer.
  • Risk distribution.
  • Third-party risk (usually).
  • Adequately capitalized.
  • Captive conducts itself like an insurance company.
  • Business purpose for Captive.
  • Premiums must be reasonable for risk assumed.

Tax Advantages of a Captive Insurance Company

Although tax benefits should never be the primary purpose of forming a captive, the following benefits can be available with a properly structured Captive Insurance Company:

  • A properly structured Captive will allow for deductions of premiums.
  • Generally, the Captive can deduct estimated future claims payments; unlike other taxpayers that may deduct claims only when paid.
  • Small insurance company provision allows up to $2.2 million annual premium exemption (effective 1/1/17) and adjusted for inflation thereafter.