A captive insurance company receiving less than $1.2M in annual premium can make an 831(b) tax election. This election permits the captive to not pay income taxes on any generated underwriting profit. Only the investment income is subject to income tax.
The 831(b) election is not a type of captive; it is simply an election that any insurance company receiving less than $1.2M of annual premium can make. That being said, captives that take advantage of this election are often referred to as 831(b) captives, wealth captives or estate captives.
While the 831(b) election can provide a very powerful benefit, it is important to not lose focus of the original insurance purpose of the captive. Preferential tax treatment should never be the sole reason to explore captive insurance, and it is important to work with the right professionals to ensure the captive can enjoy beneficial tax treatment without subjecting itself to unwanted regulatory risk.
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