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Self-insurance model called captive insurance

An insurance specialist is encouraging farmers to consider a risk management tool called captive insurance.

Van Carlson says his company, SRA 831 (b) Admin, helps business owners develop a self-insurance model.

“If I have a huge deductible on my building, or have an actual cash value minus depreciation. Which means if I have a 20-year old roof (and) they depreciate it down, I’m going to get about half of what it’s going to cost to actually replace that roof. So the rest of that money has to come out of my pocket, that’s self-insuring risk.”

He tells Brownfield by using captive insurance, clients can put away tax deferred dollars to build a rainy-day fund.

“That’s utilizing the tax code known as 831 (b), which 831 (b) says you can be an insurance company, the premium you put into it we wont recognize as income, and now that allows you to build up a surplus on a tax-deferred basis. So think of this as like a very large health savings account for business owners.”

Carlson says captive insurance can allow crop and livestock producers to take control of their risk management, reduce costs, and tailor coverage to their unique needs.