Captive insurance is insurance that is held by a third party for the insured person. In some cases, it is sold to businesses or individuals who want to protect themselves against potential risks. In other cases, it is provided by companies that specialize in insuring specific risks. Either way, having captive insurance means having a third party take care of your risk. That means you don’t have to worry about the financial implications of any potential risk.
All you have to do is pay the premium. Sounds great, right? Not so fast. There are some challenges that come with having captive insurance. That’s why people look to third party insurance companies to help them. We’ll discuss the 6 most common captive insurance terms and see if they are helpful or harmful to your risk.
Premium
First, there is the premium. If you have a traditional homeowners or auto policy, you are probably already paying a premium. But what is a premium? It is the yearly fee you pay to the insurance company. In some cases, the insurance company will set the premium. This is more common with captive insurance. The risk is the same but the price is lower.
In other cases, the policyholder sets the premium. That’s why you will see a range or a range of prices. In some captive insurance policies, the premium is determined by the type of risk. For example, a risk with high-impact claims may have a higher premium. There may also be fees or additional costs associated with certain types of risks. For example, physical damage risk policies often have a deductible. It’s important to know what you are paying for.
Loss Share
Another important term is loss share. This is the percentage of a loss that goes to the insurance company. The amount of loss share will vary depending on the type of risk and policy. With homeowners insurance, most policies have a 100 percent loss share. That means the insurance company will pay 100 percent of a loss. Auto policies usually fall between 50 percent and 100 percent.
Captive insurance policies may have loss shares of up to 70/30. That means the insurance company will pay up to 70 percent of a loss and you will pay the remaining 30 percent. It is important to understand how much you will end up paying in the event of a loss. Depending on the policy, you may end up having to pay more than you would have paid to protect yourself without captive insurance.
Deductible
Most policies have a deductible. The deductible is the amount you have to pay out of your own pocket before the insurance company will pay for any loss. Auto policies have the highest deductibles. Most policies have a $500 deductible.
It’s important to understand how much you will be paying out of your own pocket if something happens. Remember, the insurance company will only cover a certain percentage of the loss. It’s common to be surprised when you get your bill after a loss. Many policies have a $500 or $1000 limit on deductible payoffs. Captive insurance policies may have higher deductibles. You may be able to lower your deductible by getting a collateral protection clause.
Collateral Protection Clause
Another important term is collateral protection clause. This is a clause in your policy that allows the insurance company to make a claim against your assets if you do not pay for the loss. Most policies have a clause where the insurance company can make a claim against your collateral if you do not pay for the loss. It is commonly referred to as a lien.
The Collateral Protection Clause is intended to protect a person’s assets. Most insurance companies will not exercise the lien unless they are first denied payment by the policyholder. But it’s important to note that it’s up to you to request the lien be released.
Excess coverage
Last, but not least, there is excess coverage. This is a specific amount of coverage that you may choose to purchase. The excess is a dollar amount that is added to your primary coverage. For example, let’s say your auto insurance policy has a limit of $100,000. You may want to add more coverage. Adding more coverage does not decrease your coverage.
It just makes it more expensive for your insurance company to pay out a claim. The excess, however, helps cover any excess. It’s important to understand how much coverage you need. You should also be aware of the difference between excess and excess coverage. Excess is the amount an insurance company will pay out in the event of a claim. Excess coverage is the amount that helps cover any excess of your policy.
Wrapping
Last, but not least, there is wrapping. This is the percentage of your insurance policy that is owned by your captive insurance company. The higher the percentage, the less you are paying out of your pocket every month.
It is important to understand how much you are paying out of your pocket every month. Captive insurance companies will often want to use their own adjusters to calculate your loss. This can result in higher expenses. It is important to choose a company who will work with your insurance company to calculate your loss.
Conclusion
Captive insurance is usually very affordable and provided by insurance companies who specialize in this field. It’s insurance held by a third party, who don’t have to worry about the financial implications. It’s great for taking care of risks you don’t want to deal with. What are the benefits of captive insurance?
The main benefit is that your rates are lower, which means you pay less money every month. Your risk is covered by someone else who doesn’t want to deal with it. Do you need captive insurance? Captive insurance is a great option for those who don’t want to deal with the financial burden of risk. The main challenge with captive insurance is that you don’t know the ins and outs. You have to trust someone who is not invested in the success of your business.
