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  • Davis Clemons

Key Points / Benefits of an 831(c) Micro-captive

Summary: 831(b) micro-captive members share in the underwriting profits and investment income. Captive members have a direct handle on business risks and greater control and management of claims. A micro-captive offers flexibility in policy design, coverage, and premium payment schedule. But let's look at three benefits often recognized and acted on by savvy business leaders...

Micro-captives offer alternative Risk Transfer Strategies Traditional risk transfer techniques involve purchasing conventional, guaranteed-cost insurance policies. Although this provides effective risk transfer, it offers little control over your claims and rising premium costs. Alternatively, 831(b) Micro-captives are an effective, efficient and tax-advantaged alternative.


  • Greater handle on business risks

  • Greater control and management of claims

  • Reduced expenses

  • Customized coverage not otherwise available in the standard market

  • Enhances and integrates with existing insurance policies to fill any gaps in coverage

  • Premium treated as a business expense...not profit or income

  • Facilitates recapture of premiums not used to pay claims

WHAT IS A MICRO-CAPTIVE INSURANCE COMPANY AND HOW DOES IT WORK? A Micro-captive is a captive insurance company operating with an annual gross premium up to $2.3 million (adjusted for inflation). In the United States, qualified under Internal Revenue Code 831(b), a Micro-captive will pay tax only on investment income and not on underwriting profit. The underwriting profit can either be returned as a dividend (distribution), loaned to borrower(s) or subject to limitations prescribed by the IRS, remain in the captive as surplus. The Micro-captive must qualify as a bona fide insurance company and serve a business purpose.


  • Insurance companies with less than $2.3 million (adjusted for inflation) of annual premium (as adjusted for inflation) pay $0 income tax on insurance profits.

  • Investment income is taxed as income to C-corporation

  • 831(b) structures are best developed leveraging a licensed, third party Actuary (which typically builds a comprehensive Actuarial Report helping to build policy/premium)

TAXATION (Consult with your Tax Advisor):

  • Premiums are deductible when paid under IRS Sections §162 and §212

  • Income tax on investment income only

  • Minimum premium taxes

  • Dividends are taxed as qualified dividends

  • Termination surplus are taxed as capital gains

IS AN 831(b) MICRO-CAPTIVE SUITABLE FOR YOU? To help determine if a micro-captive is right for you, Reinsurance Specialties will perform a full review (feasibility study) and actuarial analysis of your current business risks and/or your current program (including incurred and realized claims). Our subject matter experts - many with 30 years of professional experience - are happy to assess the value of these powerful and popular business instruments surrounding your your business.

MICRO-CAPTIVE INSURANCE COMPANY COVERAGE AND POLICIES The insurance in a micro-captive is customized coverage designed to expand, complement, and close gaps in existing insurance policies. Said another way, micro-captives can help business leaders insure 'under insured' risks and 'not insured' risks.


Everything a Business Currently Self-Insures:

  • Warranties

  • Deductibles

  • Losses in excess of traditional limits

  • Environmental Liability

Loss of Income as a Result of Insurable Risks:

  • Losing key employee/salesperson

  • Loss of license/professional risks (professionals)

Loss of a Key Contract Resulting from Insurable Events:

  • Weather

  • Contractor/Vendor failure

Loss from existential Events:

  • Terrorism

  • Pandemic (business interruption)

Liability Defense Expenses:

  • Employee lawsuits – sexual harassment, wrongful termination, discrimination, etc.

  • Professional claims

  • Medical Malpractice

To learn more about setting up a captive insurance company, contact us today. At Reinsurance Specialties, we help businesses leaders mitigate business risks, adjudicate claims, protect assets and build wealth through tax-advantaged premium.

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