What does Business Self Insurance Mean
If you could reduce your Property & Causality from a 3rd Party Insurance Company, by funding your own privet insurance account, paying off any claims, likewise keeping the money instead of throwing it away, would you be interested?
A Business Self-Insurance Captive Plan is when a business sets up its own small insurance company to self-insure that can reduce premium payments on your current plan. Think of this as stacking Insurance Plans except you are in control of the funds. The business owns and controls this “captive” insurance company. If it meets IRS rules — including keeping premiums under a certain amount — the captive can choose to be taxed only on its investment earnings, not on the money it collects for insurance coverage. This creates potential tax and risk-management advantages, provided annual written premiums do not exceed the 2.8 Million threshold set by the IRS (adjusted annually for inflation).
The requirements to become your own insurance company is simple, you just had to pass the 4-Part Test. The questions below will outline the scope of problems a business will encounter on a daily basis, if you answer “YES” to any of these problems you qualify.
Primary Types of Business Risk
1. OPERATIONAL RISK
When things inside your business — people, tools, or processes — break down.
- Employee
- – A person steals, quits, or makes a costly mistake.
- Vendors
- – A shipment is not delivered or incorrect and you’re out of stock.
- Human Error
- – Employee inputs incorrect customer order details, leading to fulfillment issues.
- – Staff member forgets to renew a business license or regulatory form.
- – Finance team member mistypes a wire amount, sending too much or too little.
- System Failures
- – Computers crash or software breaks
- – The point-of-sale system crashes during peak hours, halting transactions.
- – Internal databases become corrupted or inaccessible due to a software glitch or system failure.
- Supply Chain Disruption
- – A vendor misses a delivery window due to transit issues, causing inventory shortages.
- – A key supplier changes terms or goes bankrupt with no warning.
- – Unexpected customs delays prevent critical equipment from arriving on time.
- Process Gaps
- – No defined workflow for handling customer complaints leads to escalated disputes.
- – Invoices are issued late or inconsistently, delaying cash flow.
- – Lack of quality control checks results in defective product batches reaching customers.
- Third-Party Failures
- – A 3rd Party Payroll Company has computer glitch missing payroll dates.
- – A 3rd Party Vendor is shut down by illegal violations.
- – A logistics partner mishandles shipping, resulting in loss or damage.
- – A contracted IT firm pushes an update that breaks core software functions.
- – Cloud-based accounting software experiences downtime during quarterly closing.
- Staffing/Personnel Risk
- – A key manager resigns without a succession plan in place.
- – Internal conflict between teams delays critical decision-making.
- – On-boarding for new hires is insufficient, causing costly mistakes in early weeks.
2. FINANCIAL RISK
When money problems hit — whether it’s debt, cash flow, or not enough reserves.
- Can’t make payroll because customers are slow to pay.
- You took on a loan assuming growth — but sales slowed.
- Interest rates jump and your payments follow.
- Inventory is overstocked or unsalable.
3. MARKET RISK
When the overall market shifts and takes your margins with it.
- Costs rise due to inflation, but prices don’t.
- Customers pull back spending in a downturn.
- A new competitor undercuts you or disrupts your industry.
4. CREDIT RISK
When others owe you money — and don’t pay.
- A major client goes bankrupt on net-60 terms.
- Most of your income comes from one buyer — and they pull out.
5. LEGAL / REGULATORY RISK
When paperwork, compliance laws, trip you up or get missed.
- Workers giving false info on applications, unknown to you.
- Operating without the right permits brings fines.
- A contract dispute leads to a costly lawsuit.
- Retail buyers use charge backs or dispute charges, even after delivery.
- A long-standing customer suddenly files bankruptcy — leaving your receivables unpaid.
- Breach of contract lawsuits arise from missed deadlines or non-performance.
- Ambiguous terms in vendor agreements result in costly legal disputes.
- Employment-related claims (harassment, discrimination, wrongful termination).
6. REPUTATIONAL RISK
When public opinion turns against you — online or off.
- A bad review goes viral with screenshots.
- An employee’s mistake becomes a PR mess.
- Allegations of fraud, discrimination, or harassment involving leadership.
- A widely used product has defects that result in harm or legal claims.
- Government investigations cast a long-term shadow over company legitimacy.
- Employee dissatisfaction spills into the public sphere via reviews or leaks.
7. STRATEGIC RISK
When top-level decisions steer you the wrong way in a new market that flops or misjudging a competitor.
- A new law, tax policy, or licensing requirement disrupts the business model.
- A change in federal or state compliance rules makes prior strategies obsolete.
- A bad partnership bleeds time and money.
- You grow too fast and outpace your resources.
- You enter a new market with no real demand.
- A rapid scale-up strains systems and leads to delivery or quality breakdowns.
8. CYBER / INFORMATION RISK
When your digital systems or data are attacked or lost.
- A former employee uses retained credentials to access confidential files.
- Human error results in accidental disclosure of restricted information.
- Third-party software vulnerability exposes your data to external actors.
- Sensitive customer or employee data is stolen during a system intrusion.
- Someone clicks a phishing link and exposes sensitive info.
- A crash wipes out years of records or customer data.
9. ENVIRONMENTAL / NATURAL RISK
When nature throws a wrench in your operation.
- A hurricane shuts down your facility or shipping routes.
- Drought drives up the cost or limits supply of key materials.
- Tornadoes damage power lines, leaving your facility offline for days.
- Snowstorms shut down physical locations, delaying production and logistics.
- Flooding or fire damages property or stops production.
- Flash flooding damages equipment, IT servers, or electrical panels.
- Toxic spills near your facility require temporary relocation or health screenings.
- Fuel shortages or transit disruptions raise costs or halt delivery.
10. POLITICAL / GEOPOLITICAL RISK
When government decisions or global issues hit your bottom line.
- A tariff forces your company to tool up for increased orders overnight.
- A tariff forces your company to buy American made goods and contracts must be negotiated.
- A tariff makes your imported materials more expensive forcing you to seek American alternatives.
- Conflict or sanctions disrupt your supplier’s operations.
- Local Government delays permits or halts construction over red tape.
- Armed conflict, civil unrest, or terrorism interrupts operations or logistics.
- Government corruption stalls infrastructure projects critical to operations.
- Industry regulations are tightened, raising compliance costs or limiting market access.
- Government shuts down the entire economy over a fake pandemic with a 96% survival rate.
Benefits of a Captive Self Insurance Plan
- Customized Coverage – Tailor insurance policies to fit your business’s unique needs.
- Financial Efficiency – Potential tax advantages can improve cash flow and reserve accumulation.
- Risk Management – Proactively address and fund for specific risks.
- Investment Opportunities – Utilize reserves for strategic investments, subject to regulatory compliance.
Is a Business Self Insurance Plan right for Your Business?
Determining the suitability of an plan captive requires careful analysis of your business’s risk profile, financials, and long-term goals. Engaging with experienced professionals can help assess feasibility and ensure compliance with IRS regulations.
Contact Us
For more information or to discuss how a plan captive might benefit your business, please reach out to our team.
- Phone: 214-730-2471
- Email: scott@dallasmms.com
- Address: 317 E Daugherty Dr, Garland, TX 75041
*This page is for informational purposes only and does not constitute legal or tax advice. Consult with a qualified professional before making decisions related to captive insurance.*