Captive insurance is a form of self-insurance in which a business (or group of businesses) creates a subsidiary insurance company. The insured business then pays premiums to the “captive” subsidiary company in exchange for insurance. The owner of the captive may be the owner of the insured business, a trust, or another subsidiary of insured company. Agribusiness companies and very large farmers have already been taking advantage of this strategy, and it could be worth a look for other farming operations.
Captive insurance is not the best solution for every business. Consult with an insurance professional who has experience in captives when determining the feasibility of this strategy for your farm. You can begin, however, by considering the following questions:
- Are you looking for a different way to protect your revenue and assets?
- Are you concerned that Federal Crop Insurance subsidies will disappear in the future?
- Are your crop and property and casualty losses minimal?
- Do you pay considerably large premiums for crop and property and casualty insurance?
For the right farms, captives can provide substantial benefits. In addition to allowing the farm business to retain more of its profits, captives can act as savings accounts during years when no losses occur. Captive premiums are tax deductible and enjoy some protection from creditors. You can also incorporate captive premiums into your estate plan.