There’s a powerful new way for farmers and ranchers to manage risks that unlocks a better way to do business and a better future for you and your family. Captive insurance, a form of self-insurance, can greatly benefit farmers and ranchers and their families.

Key Differences Between Captive Insurance and Traditional Insurance

The first and most important difference between Traditional Insurance and Captive Insurance is that you own the Captive Insurance company 100%. This has two very important positive implications for you and your business.

First, your captive insurance company keeps the premiums you pay into it, net of fees and claims. This essentially turns the traditional insurance business model on its head. By setting up your own insurance company, you are creating and retaining value for you and your business that would otherwise be lost by paying premiums to a larger commercial insurance company.

Second, your captive insurance company can cover risks that are not addressed by the traditional insurance markets. This means that the policies and coverages you obtain through your captive insurance company are fully customizable and specifically tailored to address the risks unique to your business.

Customized Risk Management

Traditional commercial insurance generally takes a “one size fits all” approach when they build their policies. This means that they are limited in the coverages they can offer, providing you with limited options.

In direct contrast to the traditional insurance approach, 3F Captive Services works closely with you to determine what unique risks you and your business face that cannot be covered by traditional insurance companies. We then craft policies that are most relevant and acute to your business, and work with independent actuaries to price the premiums on those policies.

To be clear, you should think of captive insurance as a supplement to your existing commercial insurance, not a replacement, augmenting your risk management practices and reducing the threats to your business.

Superior Claims Management

In addition to providing better coverage for you and your business, the claims management process with captive insurance also works to your benefit.

Remember, with traditional insurance companies you are paying premiums to them, and they have every incentive to keep as much of those premium dollars as possible. The financial incentives for the insurance companies create a dynamic where they operate to limit the amount of money they pay to you when you file a claim or deny your claims altogether.

Because you own the captive insurance company 100%, and you retain and keep all the premiums that you pay in your insurance company, you are in effect paying yourself for any losses that you incur. This results in both a streamlined and faster claims process and eliminates the incentives to limit and deny claims that exist with traditional insurance.

Financial Benefits

Beyond the risk and claims management benefits enumerated above, working with 3F to set up your captive insurance company can also have massive financial benefits to you, your business, and your family. The unit economics of a captive operate much like a 401k for your business through two important mechanisms:

Tax Treatment of Premiums‍

Assuming an 831(b) election, any premiums paid into your captive insurance company are fully tax deductible to your operating business and are not taxed at the captive insurance company. The captive is only taxed on realized investment gains.

Greater Wealth Accumulation

‍Given the favorable tax treatment of the 831b election, this means that the premiums (net of fees and claims) are retained 100% by you and grow in a tax deferred manner. In many cases we conservatively estimate that your total asset growth is double within 10 years having a captive in place versus a world without one.