Posted: Sunday, October 6, 2013 11:04 AM
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Perhaps the greatest disadvantage is that a substantial loss may occur before sufficient funds for loss coverage have been accumulated. The plan is not feasible where properties are subjected to single catastrophic losses. Self-insurance funds seldom conform to basic insurance principles and practices. Self-insurance is more practicable (and probably more widely used) by states and municipalities where funds, usually based on stock company premiums, are created by budgetary appropriations. It is also possible that there will be a tax disadvantage. If property is carried at less than its replacement value, the IRS may require that part of the expense of replacing the property be treated as an improvement. In that case it must be capitalized. Captive Insurance Companies An additional way in which the risk manager may protect the assets of a corporation is through the use of a captive insurance company. "Captives" are insurance companies established by corporations to insure their own risks. It is a wholly owned subsidiary of the parent corporation. Captives offer alternatives to the commercial market to fulfill the need for specific types of coverage which are not available or affordable through the conventional insurance market.
Note that to self-insure, a company sets aside money to cover losses. On the other hand, a captive is a separate company to which its parent pays premiums and it covers a loss up to the amount for which the parent is insured. More than 200 of the nation's 500 largest industrial companies now have captive insurance subsidiaries. Types of Captives Captives are classified as onshore and offshore. An onshore captive is one that has been incorporated domestically and conducts business in the United States. An offshore captive is one that is incorporated and conducts its operations in a foreign jurisdiction but primarily insures risks in the U.S. Captives are also classified a$ pure, broad, and association. The pure type of captive is almost always wholly-owned by the parent company, and is formed exclusively to handle the insurance needs of the parent. The broad type of captive is in reality an insurance subsidiary of a major corporation since it handles the needs of the parent and also insures third parties. Association captives are usually owned by an organization or a group of companies, and is operated for the benefit of its members.
For additional information on auto insurance requirements, please visit California Department of Insurance.
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• Location: Long Beach, Long Beach CA
• Post ID: 27022169 longbeach