Is Construction Defect Insurable?
Yes, even construction defect is a risk that is insurable under Internal Revenue Service Code 831b. This code allows profitable businesses owners to cover their own very unique risks all business face for which they can’t get commercial insurance coverage. What unique risk does your company face that could devastate the bottom line? Is it an uneven customer base where one customer you count on provides 80% of your revenue? Is it a main supplier that has a critical component, the loss of which would stop most of your sales? Would the loss of your license stop all income? What would happen if you lost your reputation or if laws or regulations changed that your business relies on? I am not saying you can keep your license from being cancelled or revoked. Or a regulation from being changed that your business relies on. But you could have funds to keep your business going until you found someone to replace you if you lost your license or maybe you decide it is time to retire. Were you counting on your business for retirement and nowit is gone? With an Captive Insurance Company, you have many choices that were not there before you formed your Captive Insurance Company. Each Captive Insurance Company can pay in premiums $1.2 million each year. If you were transferring $1.2 million to your Captive Insurance Company for retirement every year with the mone you would of paid in taxes, maybe you would have your retirement? Or maybe you would have used part of the $1.2 million a year to invest in other businesses? The risk management tool that allows all of this is a special C Corp that was developed using IRS codes and insurance laws 45 years ago for Fortune 500 companies to handle their own risks. They use it to better manage costs for workers compensation coverage. Large doctor organizations manage their malpractice coverage through it. The entity that the Fortune 500 use is called a Captive Insurance Company. The reason that it was reserved for them was the initial $300,000 to $400,000-plus setup cost and heavy regulations hurdles. Annual maintenance cost is also $75,000, making this somewhat impractical for medium-size business. If you are a profitable privately held business- owner, the IRS allows you to transfer up to $1.2 million per family member, per year to a Integrated Reinsurance Captive for future risks that are commercially uninsurable or too costly to afford. This is accomplished througha partnership between an Insurance Company that only underwrites this type of insurance and your own IRC. The businessowner just writes a check to a Property and Casualty insurance company for these risks and 90% of the premium is transferred to your IRC. Under the same IRS code that allows the Captive Insurance Company formation, there is the Integrated Reinsurance Captive, which is a very special C Corporation for medium-size business. It's affordable for any company paying $100,000 or more in federal and state tax. The money has other unique uses once it is transferred to the IRC. It transforms the $1.2 million for each family member to money that can be borrowed for operating capital for the business owner. The IRC also allows purchases of capital equipment or other business structures. We know of a manufacturing company that purchased its competitor. Doctors expand their business by purchasing surgical centers on money they would have paid to the IRS 40% in federal and state taxes. Another very special attribute of the IRC is the first $1.2 million of revenue that you transfer to it is never taxed as long as it is kept in the IRC. If you have legitimate business risk, the IRS allows you to have one of these for each child and grandchild. If you are transferring it to one owned by your child or grandchild, it is not subject to estate, gift or generation-skipping tax. And once your main company is sold and it is time for retirement, the money in the IRC can be withdrawn at 15% or long- term capital gains. Think, the money from your main company that you would have paid taxes at a 40% rate and you were able to deduct it as a Property and Casualty insurance expense. And now after many years of being used as operating capital, personal loans, purchasing other businesses, even estate transfer, the money comes out at 15% capital gains rate. Transferring money from a 40% ordinary income tax rate to a 15% taxable gains rate – that is the secret of an IRC. This is an IRS authorized entity very few CPAs, tax attorneys or consultants know about. This is especially worthwhile now that the IRS has removed millions in tax deductions, as of Jan. 1, 2014, that businesses counted on through Sec 179 and the Bonus Deduction. Home Page |
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