Your Trusted Advisors for Captive Insurance Solutions

Navigating the complexities of risk management can be daunting, but having the right knowledge makes all the difference. Our aim is to equip you with the insights and expertise needed to make informed decisions about protecting your future through captive insurance solutions.

What is Captive Insurance?

An 831(b) Plan, also known as captive insurance, is designed to help business owners mitigate risk. The 831(b) tax code allows a business to set aside tax-deferred dollars for underinsured and/or uninsured risks.This strategy allows you to form a Reinsurance Company in which you own 100%. You will have peace of mind knowing you have a more complete solution that fills in any gaps, exclusions or limitations in your existing policies. A Captive provides you with more control over your insurance costs and creates greater customized coverage options written on an annual basis.

The 831(b) Tax Code was added to the Internal Revenue Code in 1986. In today’s market conditions, we are seeing this plan utilized strategically as economic instability becomes increasingly challenging. It is more important than ever for business owners to insure against the uninsured assets of a business. By utilizing the 831(b) Tax Code, businesses can use a captive to cover risks such as shallow loss coverage, agri-business, business interruption, data breaches, warranties, lawsuits, supply chain interruptions, policy exclusions, political factors, exposures under your crop insurance policies, equip and many more.

Captive Insurance Flow Chart

THIRD PARTY ADMINISTRATOR  MANAGES OVER ALL PROCESSES 

RISK MANAGEMENT ADVISOR 

1. “You” / Operating Entity / Business: This is the entity that will buy insurance policies and will be the owners / shareholders in the 831b Plan. 

2. Third-Party Insurance Company: Insurance Policies are issued to the Operating Entity, and Claims are paid to the Operating Entity. 

3. Your 831b Plan is a Reinsurance Company: This entity is wholly owned by you. This entity provides Reinsurance to the Third-Party Insurance Company. First Dollar Losses are paid from your Premium Reserves. You retain and control the Premiums in your Premium Reserve Account. 

4. Risk Pool: Your 831b Plan can participate in the Risk Pool to obtain more coverage, however, all participants pay their pro-rata share of unaffiliated losses in the Pool. 

Frequently Asked Questions

What are the Key Benefits?

  • 100% Ownership and Control Customized Coverage:
    Specific policies to address risks unique to your business.

  • Cost Control:
    Reduce reliance on commercial insurers and manage claims efficiently.

  • Financial Flexibility:
    Retain premium dollars and build long-term financial reserves.

Why should Farmers, Ranchers & Business Owners consider a Captive?

  • Cost Savings:
    Avoid high premiums and unnecessary costs from traditional insurance.

  • Customized Coverage:
    Insure farm-specific risks that are difficult to cover with standard policies.

  • Profit Retention:
    If claims are low, excess premiums remain within the captive.

  • Tax Advantages:
    Reduce taxable income and benefit from tax-deferred growth. 

How does this work?

  • Identify Risks: Assess risks that are expensive or difficult to insure with traditional policies.

  • Form Your Captive:
    Work with your Risk Management Advisor to establish a captive insurance company. 

  • Purchase Customized Policies:
    Obtain coverage unique for your specific risks. 

  • Retain Premiums:
    Instead of paying insurance companies, premiums remain within your captive. 

  • File Claims as Needed:
    In the event of a covered loss, submit claims and receive indemnities. 

  • Annual Policy Review:
    Adjust coverage as needed based on business risks. 

Am I a good candidate for a Captive?

For small to mid-sized businesses, an 831(b) captive insurance plan offers risk mitigation benefits, with the added advantage of tax deferral.

  • Gross Revenues: Your business should have annual revenues of at least $1 million.

  • Gross Premium Income: The 831(b) plan allows for up to $2.8 million in premiums annually.

What are the Tax Benefits?

  • Premium Payments are Fully Deductible: All premium payments qualify as a business expense, reducing taxable income. 

  • Contribution Limits: In 2025, businesses can contribute up to $2.8 million in tax-deductible premiums. 

  • Underwriting Profit Tax Exemption: Leftover premiums are underwriting profits and are exempt from federal income tax. 

  • Profitability and Investment Growth: Retain Unused Premiums as Profits: excess funds remain in the captive as underwriting profit. 

  • Tax-Deferred Growth: Retained profits grow tax-deferred and are only taxed when withdrawn. 

  • Lower Tax Rates on Distributions: When funds are withdrawn, they are taxed at long-term capital gains rates. 

  • Investment Opportunities: Funds can be invested to build captive reserves, like 401(k) plans. 

  • Liquidity Options: Business owners may borrow against their captive reserves, invest your reserves, or pay distributions to shareholders. 

  • Third-Party Administration: A captive administrator handles: Tax filings, Claims processing and Compliance oversight. 

About ARA 831b Advisors

At the heart of our company is a commitment to providing comprehensive insurance solutions tailored to your unique needs. Our team of experts are dedicated to delivering exceptional service and security, helping you navigate life's uncertainties with confidence. With decades of experience in various insurance industries, you can rest easy knowing we will take care of your business with detail and excellence.