Understanding Captive Insurance: A Simple guide to Captive Insurance

Captive Insurance

Insurance companies choose to insure businesses depending on the type of operation. If you operate a high-risk business, chances are traditional insurance might not be available or it might cost too much.

Does this sound familiar? If you answered yes, it might be time to consider captive insurance. Before choosing this type of coverage, it’s vital to obtain a good grasp of the term and what makes it different from traditional insurance.

Don’t know where to start? We’ve got you covered. Read on for your captive insurance 101!

What Is a Captive Insurance Company?

Captive insurance companies are insurers created and controlled by the business it insures. In other words, it’s a corporate self-insurance strategy where the insured owns the insurance company. Businesses often use this type of insurance to obtain difficult coverages such as product liability, medical malpractice, among others.

These companies will protect the insured and pay any claims against it. While creating a captive can be expensive, its benefits outweigh the initial cost.

Tax-deferred premiums, improved cash flow, and tax advantage dividend income are some of the top benefits of creating a captive. Creating and managing a captive insurance company is a complex process. Click here to learn more about these entities and how they work.

Why Should You Choose Captive Over Traditional Insurance?

You may own a traditional insurance policy already. Does it cover any potential claim against your company? Chances are your coverage doesn’t protect you against costly claims such as product liability, customer injuries, among others.

Captive insurance coverage can provide this type of protection. You may be asking yourself why should you consider creating a captive when you own an insurance policy. Here are the top reasons why this type of insurance is more advantageous for high-risk businesses such as food and drug manufacturers.


When you obtain traditional insurance, the cost of your policy will depend on the claims made by all insureds. Your insurance company bases your pricing on their experience insuring similar companies. It doesn’t matter if you have a great record.

Your policy will support other insureds who don’t have a good loss record. When you create a captive, you will hold the control over your claims. If you choose this type of insurance, it’s important to follow and maintain good safety practices to keep your claim costs low.

Risk Coverage

Typically, traditional insurance companies don’t cover small or costly claims. In a captive, you’ll be in charge of the type of coverage. If you choose to cover any type of claim, your business won’t suffer any losses due to liability claims.

Your business will also own investment on the captive insurance company. In other words, you will keep the insurance premiums a traditional insurer keeps as their profits.

Is Captive Insurance Right for Your Business?

Captive insurance may be the right call for businesses that aren’t able to secure traditional coverage. You may also consider creating a captive to provide supplemental protection in addition to your current insurance policy.

Before pulling the trigger, you should consult an insurance expert to learn how this type of policy can protect your business assets. Make sure to contact experts who specialize in creating captives for other companies in your industry.

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