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How to Start an Insurance Company to Finance Your Business’ Risk

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How to Start an Insurance Company to Finance Your Business' Risk

Starting a business is full of risks. The odds are against you to survive just a few years.

When you start a business that requires a ton of capital, you want to protect that investment as much as possible. You can do all the research and due diligence to know what you’re getting into. However, you can lose that investment in a heartbeat.

You can take out an insurance policy to protect your business. A better way may be to start an insurance company yourself.

Ready to learn how to start an insurance company that has cost savings and tax benefits? Read on to find out.

What is Captive Insurance?

A captive insurance company is a separate entity that allows you to insure your business. As a business owner, you are the owner of the insurance company and your business.

There are a number of tax advantages that come with a captive insurance company. Let’s say that you have a healthcare clinic with insurance premiums of $400,000 a year. Normally, you pay the premium, write off the business expense, and that’s it. You don’t see that money again.

Captive insurance allows you to pay the insurance premium to a company that you own. You can then invest that money and put it aside to pay any insurance claims against your company. If you don’t have a claim against your company, you can use that money in your retirement.

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It’s not right for every business. Businesses that have a lot of annual revenue and have high insurance premiums are good candidates for captive insurance. You also have to know how to start an insurance company.

These setups are scrutinized by the IRS. If you make a mistake in setting it up, you can lose all of the advantages.

How to Start an Insurance Company that Protects Your Business

It’s so important to understand how to set up a captive insurance company. You need to have a strong

Have the Startup Costs

It’s not cheap to start a captive insurance company. You have legal, regulatory, and consulting costs to account for. You also need to assess whether or not your company should start an insurance company.

Do a Feasibility Study

Before you take any action, you need to determine if it’s worth forming a captive insurance company. That’s done through a feasibility study.

Choose Your Partners

You need to have a team around you to manage the new insurance company. You’ll need people who can advise you on the legal structure of the entity. You’ll also need to have a board of directors to provide oversight.

You also need to have an insurance partner that will share the risk with your new insurance company.

Formation of the Company

Now you can start your insurance company. You do need to decide where your new company will be registered. Some states have distinct advantages over others. You and your partners want to choose carefully.

Start an Insurance Company

Starting an insurance company can be a smart move to protect your business and save money. It’s not for everyone, so you need to make sure that it’s the right move for your business.

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If it’s right for you, you have to know how to start an insurance company to ensure that your business is protected.

Do you want more business tips? Keep scrolling down for more tips to help your business grow.  

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