If you are a business owner generating more than $2 million in revenue, you have probably felt the frustration of writing large checks to cover risks that traditional insurance does not address.
I see this often with successful business owners we work with.
Your business may be exposed to risks such as:
• Supply chain disruptions
• Regulatory changes
• Contract disputes
• The sudden loss of a key customer
These are not always covered by standard insurance policies. When something goes wrong, the financial burden falls directly on you.
What many business owners do not realize is that there is another option available.
This is where an 831(b) captive insurance company comes in.
What Is an 831(b) Captive
The IRS allows business owners to set up their own insurance company under Section 831(b) of the tax code. Instead of paying premiums to a third-party insurer, you create a captive insurance company that insures your business against the risks that matter most to you.
Here is why this can be powerful:
• Premiums paid into the captive are deductible to your business
• The captive pays no federal income tax on its underwriting income up to $2.8 million annually
That combination means you are not only protecting your business, you are also building a tax-advantaged pool of capital inside your own insurance company.
Why It Works for Business Owners Over $2M
At a certain size, the risks you face cannot always be transferred through traditional policies. You are also likely paying significant taxes on every dollar of profit.
With an 831(b) you can turn what would otherwise be an expense into an asset.
Your captive can:
• Reduce taxes by shifting deductible premiums from your operating business into the captive
• Provide coverage for risks that are unique to your specific business
• Build an additional pool of capital that can be invested and, if structured properly, distributed back to you in a tax-advantaged way
For business owners generating more than $2M this can create meaningful flexibility. You gain protection against risks that could derail your company while also opening the door to long term wealth building.
What You Need to Know
Like any advanced planning tool, 831(b) captives are not right for everyone. They require:
• Careful design and setup
• Ongoing management and compliance
• A clear understanding of IRS rules
They also work best when the business has both the cash flow and the risk profile to justify their use. If they are done poorly, they can attract unwanted IRS scrutiny. If they are structured correctly, they can be a powerful addition to a business owner’s financial strategy.
Turning Expenses into Assets
For the right business owner, an 831(b) captive can turn one of the most frustrating parts of running a company, paying for risks you cannot fully control, into a proactive wealth building tool.
Instead of watching premiums disappear each year, you can build reserves, invest them, and create another layer of security for your business and family.
If your business generates more than $2 million in revenue and you want to explore whether this strategy fits your situation, it is worth a conversation.