WHAT IS A CAPTIVE INSURANCE COMPANY (CIC)?
Small business owners with $500,000 or more of annual operating profit should consider the use of CIC’s. A business owner can establish a privately held insurance company to insure the risks of the business. The CIC can either replace existing property and casualty coverage or can simply fill the gaps in the existing coverage for the business. The business can write off the insurance as an ordinary and necessary business expense and thus not pay taxes on those amounts. The CIC can, under IRS rules, take in $1,200,000 of premium income tax free every year. If the CIC is owned by the business owner’s children, significant wealth transfer planning can also be achieved.
