Closely-Held Insurance Company structures, known as "CHICs", are sometimes used to purchase life insurance outside the estate of the business owner with what amounts to pre-tax dollars. This should not be the primary focus of the captive, but is something that can be done with a portion of the captive's accumulated assets. Caution that there are significant issues related to the Corporate Owned Life Insurance (COLI) restrictions.

Beware Bogus Programs

There are some captive insurance promoters who attempt to persuade agents that they have special access to certain "approved" life insurance policies for captives. This is a totally false assertion. No state has "approved" a life insurance policy just for captives. Subject to the tax restrictions, a captive can invest in pretty much any life insurance policy from any company, so long as there is enough cash value in the policy to meet the reserve requirements -- taking into account all the other assets of the captive.

Likewise, some promoters have attempted to suggest to agents that only a life insurance policy with a high initial cash value and no surrender charges can be used with captives. This is another false assertion. It also implies that the promoter is going to put 100% of the assets of the captive into life insurance, which could trigger some very bad tax consequences including that the IRS might label the entire arrangement to be a "sham".

If life insurance is going to be used with a captive, it should only be a relatively small percentage of the captive's assets and certainly no where near 100%.

Beware overpricing of services. In addition to the formation fee, management fee, and a percentage of the life insurance commissions, some promoters will also charge a percentage of deposits and a fee for using a shared risk pool. These fees are not commonly charged within the captive industry and may be considered excessive.

Our Services

We have developed some unique strategies for utilizing life insurance with captive insurance, and have access to a variety of insurance solutions that can be efficiently utilized with captives.

If you are a life agent, let us assist you with developing captive insurance as another of your advanced solutions for your business clients' needs.

Since its release in late 2006, Jay Adkisson's book on captive insurance companies has become the all-time captive insurance bestseller, providing a basic introduction to captives and related structures and how they are properly utilized within the context of the client's overall business and estate planning. Available now from: Amazon and Barnes & Noble