How Captive Insurance Benefits Companies in Distress

Captives customarily have large amounts of reserve and surplus assets. These assets, of course, back the policies. However, company owners often have recourse to some of these assets in worst-case scenarios.

Possible Effects of Cashing Out

One thing to remember is that a captive should only be cashed out for purposes covered by the policy, to avoid tax liabilities. Following the advice of a captive insurance broker and doing a cost/benefit analysis beforehand is a better way to determine if this is the right choice. In many cases, cashing out a captive saves time when your company is in deep distress.

Another reason owners can benefit from getting money from a captive is because it is easier than getting a loan during a time of financial instability. Many companies not currently returning a profit benefit from loan funds, but these could prove elusive or take time to get when a company isn’t doing very well. Cashing out money from a captive policy can help give a business a necessary boost.

Can a Business Be Saved This Way?

One time in recent memory for many people where captives became lifesavers was the 2008 financial crash, which resulted in many cashing out captives to save their companies. Even though the captives were lost in the process, this action resulted in the businesses ultimately being saved. One of the primary purposes of a captive in such a situation is providing a safety need that would otherwise be unavailable.

Another way to help protect a business and reward good employees is by giving them equity in the captive. Investment in the captive causes fewer problems than full business shares do for others in the company. Another advantage of this option is better retention for critical employees.

Captives can help give many businesses the boost that they need for greater success.