buttwln.info

A captive insurance company (CIC) is an insurance company that insures the risks of operating business entities within the same “economic family”.

A CIC benefits its owner(s) generally through a combination of factors.
1.1 As with any conventional insurance premium, premiums paid from a business to the CIC are tax deductible expenses under IRC § 162(a).

1.2 A CIC that elects treatment under IRC § 831(b) is exempt from income taxation of premiums received up to $2.65 million annually. There is a public policy rationale for this favorable tax treatment. By including this provision in the tax code in 1986, the US Congress intended to increase competition among insurers and increase the range of choice for insurance consumers.

1.3 An 831(b) CIC is taxed only on its investment income. The “dividends received deduction” under IRC § 243 provides additional tax efficiency for dividends received from its corporate stock investments.

1.4 Policy premiums paid to the CIC stay in the economic family. Roughly 35–50% of premiums paid for conventional “retail” insurance go to overhead, administration and profit. A CIC reduces those costs. Further, since a CIC invests its reserves and surplus in its own investment accounts, investment gains benefit the CIC’s owner(s) (not an outside insurer).

1.5 A CIC customizes insurance policies directly to the needs and preferences of a business to improve insurance coverage and/or decrease premiums.

1.6 A CIC customizes policies to insure risks that are otherwise uninsurable or too expensive to insure using conventional insurance. Thus, a CIC is a tax-efficient substitute for “self-insurance” (i.e., no insurance). Instead of using post-tax dollars to make a “rainy-day” fund, up to $2.65 million no-tax dollars can be shifted as insurance premiums to the 831(b) CIC annually.

1.7 A CIC is particularly well-suited for insuring “business loss” risks; for example, loss of business revenue resulting from loss of key employee or customer, change in government regulations, loss of operating license, etc. (see Section 6 below).

1.8 A CIC has access to reinsurers. For a high-premium policy (e.g., $1 million), a CIC can negotiate directly with a reinsurer for favorable “wholesale” insurance rates.

1.9 A CIC established in an offshore jurisdiction incurs no state income tax liabilities.

1.10 Although a non-831(b) CIC must recognize premiums as income, deductions under IRC § 832(b)(5) for IBNR (incurred but not reported) loss reserves provide arbitrage opportunities to the CIC. The “dividends received deduction” under IRC § 243 also applies.

1.11 A CIC offers flexible financing of annual premiums (and capitalization requirements), accommodating a business’s cash flow problems. For example, a significant portion of annual premiums may be paid at the end of the premium year.

1.12 CIC reserves and surplus are not exposed to general creditors of the operating business. Insurance reserves are available for paying insurance claims only. At the end of a policy term, corresponding insurance reserves become surplus. CIC surplus is not subject to claims and can be invested to maximize return.

1.13 Since 2017, a family trust may not own an 831(b) CIC. Nevertheless, a CIC can be a valuable part of an integrated wealth accumulation, asset protection, and generational wealth transfer plan.

A well-designed CIC managed by a “turnkey” service provider can be operated and properly reinsured for about 12-16% of annual premium payments. For example, if premiums of $1.2 million were paid to the turnkey CIC, total management costs including the cost of reinsurance could be less than $150K, potentially resulting in a profit of $900+K at the end of the year if there were minimal non-reinsured claims.
Generally, a CIC makes good economic sense when the CIC receives about $250K or more in premium payments annually. The insurance licensing agency in the jurisdiction of formation requires initial capitalization of a CIC, typically about 20 percent of the first year’s premiums.

Generally, formation of a CIC is less expensive in one of the traditional foreign jurisdictions than in one of the states in the US. In any case, an 831(b) CIC usually elects to be taxed as a domestic company under IRC § 953(d), its operating account is located in the US, and its investment account (holding the bulk of its assets) can also be located in the US and controlled by its owner(s).

Unrelated owners of businesses (i.e., owners from different “economic families”) can form a multi-owner CIC, a so-called “group captive”. For example, four unrelated owners of businesses having similar types of risk could form a group captive that insures some or all of their operating business entities.

CIC assets can be accessed in several ways.
3.1 Dividends. Qualifed dividends are taxed at 15% for taxpayers in lower tax brackets, at 23.8% in highest tax brackets.

3.2 Direct investments. The CIC can invest directly in new business ventures.

3.3 Shareholder loans. Loans should be transacted only with strict formalities at arms length to avoid problems with the IRS and the licensing agency.

3.4 Liquidation of the CIC will be treated as a long-term capital gain.

To qualify as insurance, an insurance policy must shift a genuine risk from the insured to the insurer. A rule of thumb used by actuaries is that there should generally be a 10% chance of a 10% loss of the policy limit. In any case, a good CIC manager employs underwriting and actuarial skills to provide sound insurance coverage, satisfy statutory and IRS requirements, and maximize profits for a given set of circumstances.
To avoid scrutiny by the IRS concerning the appropriateness of deducting insurance premiums under § 162, total annual premiums paid by a business entity to an 831(b) CIC should not exceed 10% of the business’s gross revenue. For example, if a business has annual gross revenues of $3 million, insurance premium payments should not exceed $300,000.

For discussion purposes, risks can generally be characterized as follows.

4.1 Low-frequency/low severity risks. A CIC can issue a policy that is efficiently priced and avoid paying overhead costs of retail insurers.

4.2 High-frequency/low severity risks. Conventional insurance for such risk can be expensive because of high administration costs. The operating business can purchase a low-cost high-deductible (stop-loss) conventional policy and pay the numerous small claims up to the deductible amount. The CIC can then issue an indemnification policy to the business that covers the high deductible.

4.3 Low frequency/high severity risks. A CIC is well suited to insure this type of risk. Operating businesses often pay high insurance premiums for high severity events that rarely if ever occur. Other businesses are completely exposed to such high severity events because they do not insure against them, simply because they occur so rarely. Such risks are efficiently covered when the operating business purchases a conventional low-cost stop-loss (catastrophic) policy and the CIC writes an indemnification policy to cover rare, high-severity events.

4.4 Premiums approach policy limits of insured risk. There is little benefit from conventional insurance if premiums paid are close to policy limits. A CIC can underwrite risks more efficiently by reducing overhead costs and investing the premiums in its own accounts.

4.5 Risks that the business manages better than the industry average. A CIC enables the operating business to customize its insurance to meet its own risk profile, rather than indirectly subsidizing other companies having high claims histories.

Business Liability Policies. Liability policies cover claims made against the operating business by third-party claimants.
Direct policies directly pay claimants and legal fees and expenses. They could create an asset for plaintiffs to pursue and, therefore, are not preferred for a CIC.

Indemnification policies indemnify, or reimburse, the business for third-party claims that the business pays. The business decides whether it will pay third-party claims. In other words, an indemnification policy could cover the risk for the business without offering an asset for plaintiffs to pursue.

Litigation expense policies pay only legal defense fees and expenses. These are good policies for a CIC because they do not create any rights in favor of third-party claimants.

Business liability risks commonly exist in the following exemplary areas:

Vehicle use

Construction and design defects

Performance liability

Structural defects

Title insurance

Environmental impacts

Product liability

Professional malpractice

Advertising liability

Copyright and trademark infringement

Antitrust

Unfair trade practices (e.g., Lanham Act violations)

Director and officer liability

Errors and omissions

Sarbanes-Oxley violations

Employee relations (e.g., discrimination, sexual harassment)

Failure to investigate/control employees and agents

Libel and slander

Workers Compensation (subject to limitations)

Employee Health Insurance (subject to limitations)

Business Casualty Policies. A good type of policy for a CIC to issue is a business casualty (i.e., business loss) policy because only the business can assert a claim and no third-party claimant is involved. Most businesses consciously or unconsciously self-insure many potential business casualty risks.
Business casualty risks commonly exist in the following exemplary areas:

Unforeseen administrative action of a governmental body, e.g., pandemic lockdown

Changes in state or federal law

Judicial or administrative delays

Extortion (even if not provable legally)

Market volatility

Inability of key individual to work

Loss of professional or business license

Loss of key client or investor

Business credit (e.g., credit loss, delayed or withheld loans)

Labor cost or strike

Property damage

Unfair calling of guarantees

Litigation costs

Tax audit defense

Business interruption (e.g., computer, supply chain, weather, pandemic)

Lawsuit interruption (i.e., interruption by lawsuit into business operations)

Consequential damages

Contract frustration

Advertising and marketing failure

Business reputation

Commercial crimes (e.g., theft of trade secret)

Currency risks

Bonds. CICs are also suitable in some circumstances to underwrite surety, performance and other types of bonds.
Warning & Disclaimer: This is not legal or tax advice.

Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Is it possible to live with bad credit? Yes, but it’s going to be tough. Having a bad credit score can make things impossible, pricier and a lot more complicated. For instance, drivers with bad credit scores are usually charged higher interest rates by most insurance companies. Also, if you are acquiring new utilities, the company will have to verify your credit history before deciding whether you should shell out a security deposit or not and since banks examine credit scores, it would also be difficult to get a loan or a credit card if you have bad credit score.

Fixing bad credit is important to save money on loans, insurance and credit cards. Additionally, having a good credit score means having more opportunities such as employment, salary increase and promotions so it is important to fix bad credit in order to secure your finances in the future.

There are credit repair companies that can help you with your credit score but be careful in choosing credit repair help. Note that not all services operate legally so it is important to distinguish the legitimate companies from the bogus ones. Another important tip to remember is that there are certain methods that you can do on your own to repair your bad score so it is recommended to determine your options before signing up to something that may cost you a lot of money.

Acquire a copy of your credit report, and then examine it.

The first step on how to fix bad credit is identifying the things that require fixing. Credit reports include the errors you have done that resulted to bad credit score. Examine your credit report to know the negative items that affects on your score. According to the law, you have the right to get a free copy of your credit report every year.

Do not get too overwhelmed by the information in your credit report. Familiarize yourself with the data included in your credit report such as your personal information, comprehensive history of your account, bankruptcy and inquiries that you’ve made. The following are the usual kinds of information that that need credit repair help:

Due accounts that are charged off, late or have been forwarded to collections.

Wrong data including payments, which have been mistakenly reported late, and accounts that are not yours.

Accounts that have reached their credit limit.

Dispute Errors

Everybody has the right to dispute any incomplete or inaccurate information in a credit report. You can dispute online, which is easier and faster. However, you may not be able to acquire written records for it unless you take screenshots of everything. Therefore, it is recommended to deal with your disputes via mail so that you can send evidence that backs your dispute. Your dispute should have your credit report copy together with the highlighted items you are disputing as well as a duplicate of the proof supporting your dispute. This way, the credit bureau will be able to conduct a better and more effective investigation.

Another option to fix bad credit is to send disputes to the business or bank that recorded the data on your credit report since they also have the legal responsibility to examine your dispute and eliminate incomplete, incorrect or unverifiable data from your credit report. After a successful dispute, your credit report will be updated. The bureau will then make the modifications needed and notify the other credit bureaus.

Ensuring a clean slate in terms of financial management is challenging. A series of debts lined up in the credit report impact the lender’s decision in lending loans. And the mortgage is no different. Lenders indeed prioritize lending to individuals having pristine credit scores.

In such a scenario, individuals’ curiosity is tested as to whether-

Can I get a mortgage with bad credit?

The idea of having bad credit automatically disqualifies the individual from securing the a mortgage loan approval. It is the biggest misconception.

Getting a mortgage with bad credit can be problematic but not impossible. Even when some lenders might turn down your loan application, some non conforming lenders consider such applications. In case you do not get a mortgage with bad credit in any situation, you can remortgage your existing property.

What is a Bad Credit Home Loan?

A bad credit home loan is for individuals with adverse or less than ideal credit scores. It caters to those who cannot find suitable mortgage quotes from mainstream lenders and face rejections.

Individuals seeking a mortgage on bad credit history can get one if one can touch the affordability graph and could provide a decent deposit upfront. Non Conforming bad credit mortgage lenders exercise flexibility in providing affordable mortgage quotes to individuals.

Bad Credit: What is it?

Your credit record is the record of your past and present finances that a lender examines while providing you with any loan like a car loan or mortgage. If you have been denied a mortgage in the past doesn’t imply bad credit always.

Different lenders have different lending criteria.

Certain factors put you in the risk zone. These include- paid or unpaid defaults, bankruptcy, high-interest debts, etc. These issues reflect you as a risky borrower, and hence lenders reject the loan application.

Is There Any Particular Credit score to Qualify for A Mortgage in Australia?

There is no set credit score at which one can qualify for an affordable mortgage however most Prime Lenders will decline a mortgage on a credit score of below 600. Due to this, individuals having less-than-ideal credit scores usually get mortgages at high-interest rates and loan fees. Whether you seek the best mortgage broker online or seek quotes from a direct lender, you will notice some fee parameters intact like-

Arrangement fees

Risk Fees

Valuation fees

Legal fees

Best Ways to Securing a Mortgage with Bad Credit

When applying for a mortgage with bad credit it is important to use a Broker that Specialises in Bad Credit Home Loans as they will know the best ways to get you approved.

Would you like to consolidate your credit cards and other debt? Do you have a bad credit history? Today, many options are available online to help you reduce your debt. Whether you’re searching online to find the one that works best for your situation can be overwhelming.

Whatever caused your poor credit, you, like the rest of us, will almost certainly require a loan at some point. For people with damaged or guaranteed bad credit, there are two excellent solutions.

If you have a home, you may be able to get an bad credit debt consolidation loan using the equity of your home to get the financing you need. You might be eligible for an unsecured loan, which can help you combine your debts into one low monthly payment while requiring no collateral.

How to Choose a Lender for bad Credit?

There are several approaches to this, and each company is unique.

Companies will help you manage your Bad Credit Loans, without using another loan. These firms typically charge you a fee before assisting you in negotiating lower interest rates with your creditors and managing your monthly payments.

Usually, these techniques will save you money to start paying down the principal on your credit balances. Some of these companies are worth the small monthly fee and can save you much more than they charge.

However, the other companies are not legal and may receive monthly payments and hold them for more than a month before making payments. Late fees and, in some cases, collection fees will be incurred. These companies can spend money on you and make your situation worse.

Be careful when looking for a company for borrowing to cooperate. Before signing the dotted line, make sure they are a legitimate and long-standing business.

Consolidating your debt can bring great relief and breathing space when it comes time to pay your bills. Sometimes, when you’re borrowing on edge, just catching up with your invoice can be so overwhelming that it can be challenging to figure out how to start paying off your debt.

Carefully considering Bad Credit Debt Consolidation Online help build a financial profile that qualifies for better future borrowing. As long as the lender is responsible and offers reasonable interest rates, the online lending platform can give people more options than many other lenders to improve their situation.

Though Bad Credit Debt Consolidation loans can help you in need to remember that prevention is better than cure. It is better to decrease the possibility of having a massive amount of loans. You do not have to suffer indefinitely when repaying large loans. To live a steady and debt-free life, you must be wise.

With this in mind, loans can help those looking to improve their credit score, but only if both parties are cautious and you only apply for a loan that you can afford to repay.