Unraveling the 831(b) Captive Insurance Company: A Powerful Strategy for Entrepreneurs

3 min readMay 12, 2023

Captive insurance companies, specifically the 831(b) micro-captive, have emerged as a potent tool for business owners and entrepreneurs seeking to protect their assets and lower taxes. Through these specialized insurance companies, business owners can gain a myriad of benefits, including customized coverage and enhanced risk management. This article delves into the history of 831(b) captives, their efficacy in reducing taxes, the advantages they offer, how they can be tailored to individual needs, and why entrepreneurs should consider them as part of their overall business strategy.

History of 831(b) Captive Insurance Companies

Captive insurance companies have been around since the mid-20th century, but it wasn’t until the late 20th century that the 831(b) tax election for smaller captives gained prominence. In 1986, the United States Congress introduced Section 831(b) of the Internal Revenue Code, aimed at providing small and mid-sized businesses with an opportunity to self-insure through captive insurance companies. The tax code allows these micro-captives to exclude premiums received from their taxable income, which can lead to significant tax savings for business owners.

Efficacy in Lowering Taxes

The 831(b) captive insurance company has proven to be highly effective in lowering taxes for entrepreneurs. The primary tax advantage of a micro-captive is the ability to deduct premiums paid…