Small businesses (over $1MM annual revenue) need to been concerned with risk management. Attorney and captive law expert, Hale Stewart explains, “Risk Management looks at potentially harmful events that could affect a business, and then asks this fundamental question: ‘How can we mitigate the financial damage these events have the potential to cause?’ Or, put another way, risk management is the legal discipline of mitigating, or attempting to mitigate, the negative impact of various financially and legally catastrophic events.”
Captive insurance is a type of wholly owned insurance subsidiary used to insure risks of a parent corporation. More specifically, it’s an insurance company that you own. Stewart is the author of the leading legal text in the field: “U.S. Captive Insurance Law.” He explains, “The ability to form an insurance company is an incredible business opportunity. By forming your own insurance company, you gain better control of your risk exposure, you gain control of writing insurance policies, in the event that you don’t pay a claim, you capture the savings from your risk mitigation ‘captive’ and you get much more negotiating leverage with the companies that you do buy third-party insurance from.”
When would a small business benefit from forming a captive insurance company? For example, if a company makes a product; in a situation where they manufacture the product and sell it to a third party, if there was a product recall or somebody sues you claiming that the product is defective, a business could underwrite a product liability or product recall policy to provide insurance coverage in the event that either or those situations occurred. Traditional insurance has many exclusions and doesn’t cover situations that could be devastating to a small factory or small business.
Stewart adds, “Most business owners know that the money that you pay as insurance premiums is tax deductible, but insurance companies with less than 1.2 million a year in gross income can elect to be taxed on investment income versus gross income. This can add up to huge savings.”
Before law school, Stewart was a bond broker with Vining Sparks, where his clients were comprised of mutual funds, insurance companies and money managers. He returned to law school in 2001, graduating from the South Texas School of Law in 2003. After law school, he opened his law practice focusing on transactional work. He continued his education at the Thomas Jefferson School of Law in 2007 where he obtained an LLM in domestic and international taxation, graduating Magna Cum Laude. He has three certifications from the American Academy of Financial Management: Chartered Trust and Estate Planner, Chartered Wealth Manager and Chartered Asset Manager. He is also a member of the AAFM’s Board of Standards. He is the author of the book U.S. Captive Insurance Law and is currently completing his Ph.D.
For more information about Hale Stewart, JD, LLM please visit his website at: http://www.HaleStewartLaw.com/. His offices are located at 734 East 29th Street, Houston, TX 77009 and he can be reached by phone at (832) 330-4101. Follow his tax law blog and learn more about captive insurance law requirements and changes at: http://www.HaleStewartLaw.com/hale-stewart-tax-law-blog.html. Stewart also maintains a blog on the economy at: http://www.BondDad.blogspot.com/.