How to Avoid Mistakes When Forming a Captive Insurance Company

In business, purchasing insurance is an effective risk management strategy. Adequate coverage can shield your company from a myriad of risks, from small employee compensation claims to large class action settlements. 

Now, when it comes to insuring your business, you would ordinarily buy the appropriate policy from an insurance company. You pay the premiums, you get coverage. Simple enough. 

There’s a second option. You could self-insure your business by setting up a captive insurance company. 

In this article, our focus is on the mistakes to avoid when forming a captive insurance company. But first off: 

Why Is It Better to Create a Captive Insurance Company? 

You’re probably asking, “Why go through the trouble of creating another company instead of just purchasing insurance the traditional way?” 

Well, don’t you hate it when your coverage expires yet you didn’t make any claim? In other words, the money you paid in premiums went down the drain. 

In simple terms, captive insurance eliminates instances like these. You own the company, so the money you set aside for premiums is still in your control. 

You also have the ability to tailor the coverage to suit your business’ needs, and there are tax savings as well. 

Let’s now focus on the mistakes to avoid when forming a captive insurance company. 

Failing to Adhere to Insurance Company Laws and Regulations 

At the end of the day, a captive insurance company is an insurance company. Just because it doesn’t operate in the commercial marketplace doesn’t mean it’s not subject to industry laws and regulations. 

This is why you should not overlook the relevant laws and regulations when setting up the company. If you violate any law, the company risks hefty fines. Regulators can even shut it down. 

As such, be sure to comply with all federal, state, and local laws. Register the company, secure a tax ID, and obtain the necessary permits and licenses. 

Not Using a Company Formation Expert 

Forming a captive insurance company is different from setting up a regular company. As you already know, there’re lots of rules to follow. 

However, many business owners choose to do it on their own, not realizing the amount of work involved. If you do this, you’ll likely run into problems or make costly mistakes along the way. You’ll waste both your time and money. 

To avoid this mistake, hire a captive insurance company formation specialist. You’ll pay a service charge, yes, but you’ll rest assured that everything is being done the right way. This specialist can also offer you valuable advice, such as recommending a suitable domicile for the company. 

Click here to learn more about what a formation specialist can do for you. 

Avoid These Mistakes When Setting Up a Captive Insurance Company 

For most entrepreneurs, creating a captive insurance company is a smart move. The benefits far outweigh the risks. 

However, forming the company is a complicated process. With these mistakes to avoid, you now know how to go about it.  

Keep reading our blog for more business tips, hacks, and insights.