ALTERNATE FUNDING: CAPTIVES

It has become increasingly important for employers to offer some form of an employee benefits package in order to attract and retain a strong workforce. Additionally, employers may want to protect their company from the risks associated with offering employee benefits. While employers have traditionally insured their employee benefits risks through an outside insurance carrier, the increased demand for employee benefits has resulted in an inflation of costs associated with insuring employee benefits risks. Because of this, many employers have opted to cut out insurance carriers altogether and instead fund their group employee benefits risks with captives.

What is a Captive?

A captive is an independent insurance company that is created and owned by at least one non-insurance company for the purpose of insuring the employee benefits risks of its owner (or owners). In other words, captives are a form of self-insurance in which the insured owns the insurer. Employers might choose to form a captive as an alternative to traditional insurance in order to better control costs and manage the risks associated with providing employee benefits.

Advantages

A captive can offer significant savings and become a substantial long-term investment. By creating and owning its own captive insurance company, an employer is able to keep all of the savings and interest income it earns from the captive. This means that instead of spending money on insurance, an employer can actually earn money from its captive policy over time. This is particularly beneficial for large employers or companies that pay higher insurance premiums due to the large number of employees receiving benefits.

Disadvantages

Although captives may be a convenient and cost-effective alternative to traditional insurance for some employers, they may not provide the same benefits to every company. If an employer’s insurance premiums and claims costs are already relatively low, a captive may not provide a significant return on investment. In addition, smaller companies may find that the cost of obtaining traditional employee benefits insurance is lower than the cost of creating and maintaining a captive.

When it comes to insuring employee benefits risks, there are many options and factors to consider. To find out more about whether captive insurance is right for you, contact your INSURICA representative today.

About the Author

INSURICA
INSURICA

Share This Story

Stay Updated

Subscribe to the INSURICA blog and receive the latest news direct to your inbox.

Related Blogs

Employers Expand Family Benefits Amid Reproductive Health Concerns

May 8th, 2025|Blog, Employee Benefits|

Recent surveys indicate heightened anxiety among many U.S. employees planning to conceive or adopt children. This follows the 2024 election results and ongoing legal developments regarding reproductive rights. Over half of respondents want their employers to publicly support continued access to comprehensive family planning services.

Companies Could Face Fines Over Retirement Plan Mismanagement

May 7th, 2025|Blog, Employee Benefits|

A recent analysis of government retirement plan filings suggests companies across the country could be falling short in properly managing their employees' 401(k) and 403(b) plans, exposing them to the possibility of regulatory fines and penalties.

Go to Top