Micro-Captive Insurance for Smaller Manufacturers
Tax deferred income for risks not covered by mainstream insurers
Relief for Small Businesses Nearly 40 years ago, the U.S. Congress passed the Tax Reform Act of 1986, which included Section 831 of the Internal Revenue Code. This code created a self-insurance option for small businesses, often referred to as a micro-captive insurance plan. These plans allow small businesses to set aside tax-deferred dollars for unforeseen risks that are unique to their industry and typically not covered by mainstream insurers.
micro-captive insurance plans are small insurance companies wholly owned and controlled by their insureds
A company can establish a micro-captive on its own, or hire a professional captive administrator or management firm to help navigate regulatory requirements and documentation. Micro-captives are smaller than traditional captives, providing a $2.85 million annual premium deposit cap adjusted annually for inflation. This coverage option can be not only cheaper than traditional insurance options, but also allow greater flexibility and coverage options for manufacturers to protect against niche disasters that plague the industry.
micro-captive policies can be tailored to protect a business from supply chain disruptions or product recalls
831(b) micro-captive insurance plans allow manufacturing companies greater control and specificity over policy limits and coverages and open the potential for lower premiums long-term. Despite being a lesser-utilized Section of the Tax Code, 831(b) has had major impacts and benefits for companies opting to implement it in years past. Through research and proper implementation with a qualified micro-captive manager, these programs have the potential to reshape the way America’s manufacturing industry operates and survives increasingly turbulent global challenges.
