Purchasing insurance continues to be difficult and extremely expensive for construction firms. With the expected boom of construction on the horizon now is the time to plan ahead for risk mitigation and wealth creation.
Captive insurance has become an excellent risk management and wealth building solution for many construction company owners. A captive insurance company can finance the risk of its owners or participants. There are over 90% of the fortune 500 companies that use one or more captives to manage risk and increase their bottom line. The expansive growth of captives in the private business market is a key indicator that the use of captives is a good business tool.
Captive insurance is designed to save money on insurance premiums over time. It is appealing to construction companies in that the company maintains control over
- Services being provided from claims management to reinsurance
- Choices for shareholder in the captive
- How much risk and what type of risk the group wants to assume
- Captive profitability
Today with razor-thin margins companies need captives to remain competitive in the marketplace.
Aside from risk management the wealth building aspect of captives makes this business-planning tool very appealing. InKnowVision works with many business owners whose main asset is their business. While the business has a lot of value and is employing many people, there is usually not a lot of disposable money and cash around.
They have come to learn that a successfully managed captive can be a great wealth accumulation strategy in terms of delivering value. Construction companies in down markets often face difficult financial struggles. Some end up going out of business with nothing to start over with. Building wealth outside of the company can help to alleviate this pain point. The use of captives provides an opportunity to grow wealth away from the business while maintaining thoughtful and well-planned risk management.
Favorable Tax Treatment
One of the key drivers in any captive is that the business owner is looking for ways to defer income taxes. Everybody knows by now there’s going to be future increased tax rates and here is where a captive looks even more attractive. Construction companies can save hundreds of thousands of dollars in annual taxes and enjoy the benefits of these compounded savings for years to come.
Increased cash flow will help a company owner decide where and when to spend or reinvest the savings.
Moving More Out Of Your Estate
Business clients also can use ownership choices for the captive to transfer significant amounts of money to children and grandchildren (and in some cases, to key employees). For business clients who have already used their $5 million exemptions, a captive can be a really good way of continuing to move money outside the taxable estate.
A captive insurance company can also provide asset protection and it is one of the few things you can do that can minimize fraudulent conveyance claims while building wealth outside of your company. If someone gives their assets away and then goes bankrupt, creditors can come after the assets that were given away. However, one of the nice things about captives is that it fits into the exception of the general rule on fraudulent conveyance. The exception is that if someone pays for something and they get fair value for it, then it is not a gift so the creditors in all likelihood are not able to go after those transfers. When a business owner uses a captive, they are buying insurance coverage and are paying a fair value for it so it should be protected in an asset protection case from a fraudulent conveyance type of attack.
InKnowVision has a good understanding of the construction industry having served construction firms in the area of captive insurance planning and overall business planning. Our core focus is helping you, the construction company and its owner, capture increased cash flow, build wealth outside of your company, manage risk and protect what you’ve built. Learn what captive insurance can do for your construction company today.
View our Captive Insurance Channel to learn more.
Scott Hamilton is the CEO of InKnowVision. InKnowVision is a national advanced estate and income tax planning design firm serving high net worth individuals, families and business owners.
InKnowVision delivers superior plan designs to mitigate risk and leverage opportunity while first securing cash flow and lifestyle needs.
InKnowVision does this in collaboration with the client’s team of professional advisors including estate and business attorneys, financial planners, and accounting firms to ensure that the client’s planning goals are met.
Filed under: Advanced Estate Planning, advanced tax planning, asset protection, Business Succession Planning, Business Transition Planning, Captive Insurance | Tagged: Advanced Estate Planning, Captive insurance, Captives, InKnowVision, Risk Management, Tax Planning | Leave a comment »