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2023 Captive Insurance


In 2023, business proprietors have the option to establish a captive insurance company as a protective measure against specific risks faced by their primary business. This setup is popularly known as a captive insurance company.

Qualification for Captive Insurance

Wondering if you're eligible for this strategy? Setting up a captive insurance company offers dual benefits: it shields your business from financial uncertainties and grants you amplified control over your business's insurance dimension. The unique feature here is the ability to direct tax-deductible premiums to a self-created captive insurance entity rather than an external insurance provider. This mechanism ensures monetary savings that would conventionally be directed towards the third-party insurer.

In-depth Analysis: 2023 Captive Insurance

At its core, a captive insurance company is a private insurance entity, conceptualized and brought to life by business owners. Its primary purpose is to serve as a protective shield for the parent company against certain impending risks. This strategy emerges as an innovative approach to risk management. It empowers companies with financial protection coupled with enhanced control over their insurance protocols. A pivotal characteristic of this setup is that the insurance entity remains under the complete jurisdiction of the insured company.

Tax Savings Mechanism:

  • Directing tax-deductible premiums to one's captive insurance, as opposed to an external entity, ensures substantial savings.

  • Captive insurance companies, over time, evolve into profit hubs, amassing tax-free cash reserves. This accrual happens when the premiums paid by the parent company overshadow the claims made.

  • Upon extracting excess reserves from the captive insurance, they are subjected to capital gains tax rates rather than the typical ordinary income rates.

To illustrate, consider a business that annually commits $500K towards liability insurance. While this expenditure is deductible, the cash outflow remains a fact. Now, if the same establishment were to instate a captive insurance company, the $500K premium would be channeled to this internal entity and subsequently invested. The resulting profits would be proprietary to the captive insurance and, when dispensed, would be governed by capital gains tax, contrasting the standard ordinary income tax.


  • Economic Boost: The bottom line of the business can potentially witness a surge in savings.

  • Risk Mitigation: The business enjoys enhanced risk coverage, courtesy of precise insurance targeting.

  • Investment Avenue: Funds within the captive insurance reservoir can be strategically invested over time.


  • A meticulous captive feasibility study might be a prerequisite to determine the viability of initiating a captive insurance company. This would also serve to record the business rationale behind such a move.

  • Regulatory stipulations associated with captive insurance can be onerous.

  • Captive insurance setups often find themselves under the IRS scanner, given their listing on the “Dirty Dozen” – a compilation of potentially exploitative tax strategies.

Underlying Assumptions

The crux of the captive insurance model lies in its design to extend insurance coverage to the primary, or parent, company.

Claiming Requirements

  • The bedrock of the arrangement should be rooted in “insurance risk”.

  • Essential components include risk shifting (relocating risk from one entity to another) and risk distribution (a diversified risk spread to ensure the viability of the insurance company).

Eligible Business Entities

The following business categories are positioned to avail the benefits of captive insurance:

  • Schedule C

  • Schedule E

  • Schedule F

  • Farm Rental

  • S Corporation

  • C Corporation

  • Partnership

Discover More Tax Strategies

Interested in uncovering more tax-saving strategies you might be eligible for? Dive deeper with Ubiks, and explore how you can optimize your tax planning to ensure maximum savings for your clients.

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